What is an Investment Club?
Investment clubs have been around for decades, and tens of thousands exist in America today. They've been growing in popularity in recent years, partly due to the best-selling books by the Beardstown Ladies.
Members of investment clubs, often groups of friends or co-workers, typically meet once a month to discuss companies and make decisions about which stocks to buy and sell. At meetings they each contribute a small sum of money that is deposited in a joint account. Members take turns researching and reporting on promising companies in which they might invest or companies in which the club is already invested.
The National Association of Investors Corp. (NAIC), established in 1951, has set forth guidelines for running successful investment clubs. It urges members to:
- Invest money regularly, regardless of market conditions
- Reinvest all dividends and capital gains
- Buy stock in companies that are growing faster than most of their peers
- Diversify investments, not putting all the communal eggs into one basket
These guidelines are fully Foolish and quite sensible. (Of course, hang around Fooldom online and you'll glean much more guidance. We run a bunch of real-money portfolios, modeling a variety of investing strategies for you.)
Successful investment clubs focus on learning as well as doing. There's often an education officer elected and guest speakers invited. Club members seek to explore new ideas and discuss investing issues. One month a member might present her findings on the value of screening for low P/E stocks. Another month, a member might report on a book he read about a great investor like Warren Buffett or Ben Graham. In the early sessions of a club's life, education components might be very introductory, covering how to read a balance sheet or an earnings report. A year or two later, the club might be learning new ways to value stocks or discussing an interview published with a successful equities analyst.
Investment clubs today hold a total of more than $175 billion worth of equities in their portfolios -- rivaling the largest mutual funds. Each month investment clubs add more than $50 million. This is big business -- and exceedingly Foolish, too.