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San Clemente Journal

Investment Clubs Offer Education & Fun

Feb 05, 2006 12:14PM ● By Shelly Cormack

For many individual investors, investment clubs are an excellent way to increase their financial knowledge and form new friendships. Truly adventurous investors may even form their own investing clubs, an endeavor not to be undertaken lightly. 
The first step in forming an investment club is to identify prospective members. In all probability, you’ll find more than enough people intrigued by the club concept. The organizer’s goal is to clearly communicate to all would-be members what club membership entails. That way, those individuals who accept an invitation to a meeting are more likely to join and become productive members. To succeed, members of an investment club must be able to function as a team. For this reason, investment club members often know each other already. 
In addition to compatibility, club organizers generally should seek individuals who are committed to the same investment philosophy as other members. A club cannot succeed if its membership is split between long-term investors and short-term traders who constantly move in and out of the market. 
The group should be small enough to keep everyone involved and interested yet large enough to ensure that club responsibilities don’t become burdensome for any one particular member. The ideal number of members tends to be 15. 
Some common characteristics of successful investment clubs include: 
- Following a structured yet flexible agenda; 
•Setting long- and short-term goals and measuring your performance toward reaching those goals; 
• Expecting and, indeed, requiring involvement of all members; 
• Rewarding member participation; 
• Supporting the continuing education of all members; 
• Using available tools, such as computers, videotapes and slides to facilitate member participation and understanding; 
• Maintaining disciplined stock study, selection and portfolio management procedures; 
• Thinking creatively and promoting a spirit of enthusiasm, excitement and enjoyment. 
One of the keys to the success of any investment club is selecting the right investment representative. Should you choose a discount broker or a full-service firm? Beyond the cost issue, there is a question of service. A full-service broker will often serve as a facilitator to encourage your group to learn what it takes to invest prudently. A discount broker will typically be available only as an “order-taker.”
Regardless of which route you follow, make sure the investment representative you choose is not a member of your investment club. This could present a conflict of interest. 
Finally, designate one club member to serve as the liaison with the club’s broker. This will help avoid confusion and miscommunication. The designated individual should ask the broker for recent information on stocks in the club’s portfolio as well as for stocks being considered. Advice from the broker should be sought only after the club has done some analysis of the investments that are of interest. Information obtained from the broker in advance of meetings should be recorded and shared with the group before decisions are made. 
Once you have selected an investment representative and identified the club’s objectives, the following guidelines will help crystallize the specific strategies your group implements: 
• Invest a set sum once a month in common stocks regardless of general market conditions. This will help you obtain lower average unit costs. 
• Reinvest dividends and capital gains immediately. Your money will grow faster if earnings are reinvested; the theory of compounding is at work. 
• Buy growth stocks to help stay ahead of inflation. 
• Allocate your investments among a variety of securities, industries and parts of the world. Diversification helps spread both risk and opportunity. 
• Maintain a long-term, buy-and-hold outlook. Investment clubs are not get-rich-quick schemes. 
An investment club can be an entertaining and educational way to invest while offering members the opportunity to accumulate wealth. Whether joining a club or forming one from the ground up, plan for fun, friendship and, potentially, financial gains. b