The Inner Workings Of Investment Clubs

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Like other clubs, investment clubs ordinarily meet once a month. Meeting less frequently than that slows activity to an unsatisfactory pace, more frequently places a greater demand on the members' time than most are willing to sacrifice.

The usual investment is $10 per person per month, although this depends entirely on the group's level of income. Some clubs set the ante as high as $100 per month. Less than $10, of course, does not give the club much capital to work with, and will probably make progress seem discouragingly slow. More than $40 makes it possible for a member to set up an individual Monthly Investment Plan (MIP), and at $100 an investor could deal directly with a broker from time to time. In these latter instances, however, diversification would be harder to achieve and, of course, the burden of stock selection would be on the individual rather than decided by the shared wisdom of the group. It appears that most individuals find the club experience a good training ground in investment and that, after they learn their way around, some 40 percent of them feel well enough oriented to open personal accounts.

Investments of $10 to $20 a month for groups of 10 to 15 people mean a fund of from $100 to $300, not an overwhelming amount, but enough to buy 10-share blocks at 30 or five-share units at 60. The average club investment is about $260 a month.

Whatever the amount, most clubs feel that it is absolutely essential that all members invest equally. If individuals are allowed to have two or more memberships, or to invest twice or three times as much as the others, it will also be necessary to give them two or three votes in club affairs, thus unbalancing the share-and-share-alike mutuality which is basic to successful operation of this kind of organization. Twice as much money is not automatically a guarantee of twice as much good sense when the votes on investment are cast.

In selecting stocks for investment, procedures are as various as the ingenuity of the club permits. Some clubs start by accumulating shares of the company the members work for, or a company active in the area whose personnel and operations are known to the club. Other clubs undertake a study of a different industry each month and then, perhaps, appoint a committee of several members to report on companies within the industry. Some clubs arrange visits to company headquarters, or branches, in their vicinity. They inspect oil fields, mines, mills, and manufacturing facilities. All of this, of course, is rudimentary, but it is the beginning of understanding and evaluation.

For the rest, it depends on the club's objectives. Like you, it must decide whether to try for growth, dividends, or stability, whether it is in for a quick profit or for long-term appreciation.

Here is where the banker, the accountant, and any other specialist the club is fortunate enough to have among its members can assist in interpreting earnings trends, price-earnings ratios, and capital structure. The club's broker can help here, too.

Once the facts are before it, the club can vote whether to invest or to look further. Voting rules are, again, a matter of group decision. A simple majority may prevail, or a club may feel that investment decisions are of sufficient gravity to require something closer to unanimity, perhaps a two-thirds or three-quarters majority.

Investment clubs can be a good way to decide where and how to invest your extra money, particularly if you feel that collaboration is beneficial. In all likelihood, there are one or more investment clubs close to where you live or work, and a quick search will show you the options you have in your area and income bracket.

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