On Tuesday, Steven Mallas shared the problems that he had when he tried to form an investment club with some friends. Reluctant to form a legal partnership, the club perished before it had a chance to flourish. I can see where this could be a sour experience for my fellow Fool. However, I have to disagree with his suggestion that the best solution is for investors to gather and share investing ideas, and then buy stocks on their own.
There is nothing wrong with that kind of informal investing club. As a member of the analytical team for our Rule Breakers newsletter service, I see that experience as a close fit to Steven's dream club. Subscribers value the daily interaction and perpetual feedback on the various discussion boards almost as much as the monthly newsletter itself.
However, if you were thinking of starting a real investment club and Steven scared you away, let me see if I can win you back. I was a founding member of an online investment club in 1992. Yes, folks were congregating online way back then, though we were just the third club to operate that way. We never met, but we always had plenty to share. Setting up the partnership was a breeze, thanks to the National Association of Investors Corp. Paying dues to be members of the NAIC was a necessary expense because it helped us secure everything from accounting software to investment club insurance.
I was the treasurer for the first couple of years. Every month I would walk into my local Schwab
Now, could we have dispensed with all of the formalities and simply huddled regularly to research stocks and share notes? Of course. However, because we had established the partnership and were pooling our modest monthly contributions, there was more at stake. We participated actively. We debated often. I think we all became empowered investors along the way.
Unfortunately, the club disbanded last summer. I had stepped down from the club a couple of years earlier. Even at a distance, it was sad to see the club go away. Most of the 10 stocks in the portfolio were liquidated. The two largest holdings -- United Natural Foods
Was the club a failure? No. Was the partnership a mistake? No. A dozen complete strangers kept an online investment club going for nearly 12 years. Investment clubs work. Partnerships aren't that complicated. Accounting and tax preparation software makes the bean counting a snap. I may never get Steven to reconsider his position and give a formal investment club a second chance, but I hope it's still not too late to get through to you.
More information on investment clubs:
Longtime Fool contributor Rick Munarriz also thinks that club sandwiches are cool. He does own units in Cedar Fair. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.