Over the past 48 years I have been associated with a number of investment clubs as a member, broker and investment advisor. I have seen the best and the worst of what investment clubs have to offer.
Clubs have many reasons for being and stating a clear purpose for your club is paramount to both the expectations of the members and its relationship with the broker or investment advisor.
My first outing with investment clubs was becoming involved with a group of professionals from Penn State that were meeting for the social benefits of investing. The club meetings were less about investing than about getting together and eating a meal or dessert and talking about the markets and what might be a good investment.
There were no serious investors in the club, dues were a nominal $20 per month, the educational component as nil and we all enjoyed sharing our opinions on things and then investing maybe $1,000 in a new investment. It was rather like a herd of cats, each with his own idea of what we should be doing and no one really expecting to make money in the investment markets.
Another club I belonged to for years met at Myers Restaurant (for those of you who remember Jack Myers) and we drank as much beer as we invested. Nevertheless, it was an enjoyable experience as we were all affable and none too serious about our investment opinions.
In the midst of all this experience, I came to realize that many investment clubs are social in nature and for some an excuse to get out of the house for the evening.
Other clubs have a stronger educational component and have regular meetings complete with expert speakers hopefully raising the investment knowledge of the membership. So let’s see, we have social clubs and educational clubs for the most part, both carrying the pretext of investing money.
In recent years the Internal Revenue Service has become more interested in the business of investment clubs and now requires that complete partnership tax returns and Schedule K-1s (Form 1065) be issued to members, along with accompanying annual accounting.
This has sidelined many small clubs that have neither the size nor focus needed to do the business of accounting and tax returns, which now cost about $1,000 a year.
The National Association of Investment Clubs (NAIC) can help those struggling or starting a new club with accounting software and extensive educational materials as well as a periodic magazine called Better Investing. They even have an annual conference.
My current investment club started in 1994 and has grown from a few thousand dollars to over $300,000 in assets with ten members. The club has grown from a share price of $10 to the current price in excess of $70 per share.
Compounded over the nineteen years, that equates to an annual growth rate between 10 and 11%. While the club is populated with conservatives and liberals politically (which makes for interesting conversations), the focus of the club is on making money in the markets.
We have had new members, members pass on to the next life and old timers for the life of the club and still others participate for a while then move on to other interests. All along we have committed to growth as our investment objective and have realized our goal fairly well.
In the process we have had terrific winners, sold some too early, held on to others too long and had some real turkeys. In other words, we have run the gamut of investment experiences.
The future, of course, is unknown and I have no idea how well we will traverse the next bear market. We meet monthly for a couple hours and thrash out our investment buys and sells over breakfast with a democratic vote, one vote per member regardless of the ownership in the overall club.
While our club has some social aspects, it is really focused on investments as its primary concern, with a commitment to making our money grow faster than the overall market. We use NAIC’s accounting software, a local tax accountant and run the operation like a business.
I might also mention that there is a fair amount of gray hair in this club. Our success seems to be related to a clear business purpose and a commitment to invest enough money to make the club demand our continued attention.
