Investment clubs are terrific for beginning investors, but they offer a lot to seasoned investors, as well. Don't shortchange yourself by assuming they're not for you.
In a typical investment club, you band together with a handful of others who are interested in making money. You study and discuss companies and decide how to invest your pooled money. Club members will generally contribute to the club's coffers each month.
Investment clubs can help many people learn about investing, especially those who are new to it. Even if you know that great wealth can be built from great investments, you might not know how to determine which stocks are most likely to outperform. In a club, members can each read and think about investing, then share what they've learned, getting answer to their questions from fellow club members.
With a club, you're not on your own as you aim to become a better investor. You can benefit from the thoughts and insights of your peers. Even if you have decades of money management under your belt, you'll be able to talk knowledgably and share informed insights with other experienced people.
Leverage represents one of the most invaluable advantages investing clubs can offer. Though many of us would love to examine every company out there to find the most promising stocks, none of us has unlimited time. But even if you can only study one company a month, a club with 11 others who can do the same will allow you to cover 12 times as much ground with minimal extra effort!
You needn't agree with your fellow club members, but even debating an investment's merits with them can aid your thinking. And even if the club decides not to invest some of its money in a stock you really liked, you can still go home and snap up shares of it for yourself. The club doesn't have to be your main investing vehicle -- it can just supplement your portfolio, providing its main value through new ideas.
Investment clubs buy into a broad range of company. Below are six of the 10 most active stocks among the thousands of clubs tracked by the folks at BetterInvesting.com, along with some information about them:
Net profit margin
Return on equity
Five-year avg. revenue growth rate
|Cisco Systems (Nasdaq: CSCO )||17.9%||16.6%||7.9%||13|
|Teva Pharmaceuticals (Nasdaq: TEVA )||20.7%||15.2%||23.1%||13|
|O'Reilly Automotive (Nasdaq: ORLY )||7.8%||13.1%||23.8%||20|
|General Electric (NYSE: GE )||8.1%||10.2%||0.1%||17|
|LKQ (Nasdaq: LKQX )||6.8%||12%||36.7%||22|
Data: Motley Fool CAPS and Morningstar.com.
NM = Not meaningful due to negative earnings.
They won't all be long-term winners, but the companies above have passed close scrutiny by thousands of investors. With the exception of ENGlobal, just about all of them have strong profit margins and not-insignificant returns on equity. Most have solid top-line growth as well, though for those that don't, it's important to remember that we've had a few very tough years recently. Consider looking into any of these companies more closely, or come up with your own contenders via a club of your own.
Hold that money
If you're averse to pooling your hard-earned money with others and entering into a formal partnership with them, you're entirely within your rights to avoid investing clubs. However, you might also consider forming a club where all members participate, but stop short of pooling money.
Pooling funds can be instrumental in keeping people committed and disciplined, but it's not a requirement. Your club might simply feature research and discussion about many companies, with members making their own investment decisions\ separately.
If you're interested in forming or joining a club now, good for you! Learn more at BetterInvesting.org, or via one of many useful books. Our own Investment Clubs: How to Start and Run One The Motley Fool Way is out of print, but you can still find used or older copies in online stores.
With or without a club, learn all the basics of money management with our 13 Steps to Investing Foolishly. It'll get you on track to a great financial future in no time.