Ways to make your investment club prosper

Black Enterprise, Feb, 1998 by Carolyn V. Brown

Belonging to an investment club can be a sociable and educational experience. But it takes commitment to make it a money-making venture.

IT'S ALWAYS EASIEST AT THE BEGINNING. WHENEVER your investment clubs meets, everyone is bustling with enthusiasm. There's never a problem getting members to research stocks. There's a feeling, a spirit that anything is possible.

Two years later, though, it's a different story. The excitement has started to fade and club members start to slack off. They stop coming to the meetings. They do less and less work researching companies and recommending stock picks. Their idea of belonging to an investment club has narrowed to sending in a check for their dues each month.

It takes more than a monthly contribution to achieve wealth, though. BLACK ENTERPRISE decided to talk to clubs that have gotten over the two-year hump on the road to long-term success. We looked for their advice on how to keep that initial momentum going strong. Here are their tips on how to help your club survive the down cycles, of group investing. After all, you need members who are willing to do the research and devote their time to club activities. You need the group to pull together. And, if your club hangs in there long enough, everyone will reap financial rewards.

1. Keep interest high. Perhaps the greatest challenge clubs face is keeping members active. "What happens is that a handful of club members end up doing 80% of the work, which eventually leads to resentment and fleeting club members," says Walter L. Clark, vice president of investments with Gruntal & Co. L.L.C. in Baltimore, and financial advisor to several investment clubs.

It doesn't help that member participation tends to drag in a declining market. Then again, doubt sets in with club members who thought they would make money quickly, and then jump ship soon after the club's formation, adds Clark. "The first two years are really the building blocks. The club can't afford to have such setbacks because people become complacent and impatient."

Thomas O'Hara, chair of the National Association of Investors Corp. (NAIC) in Royal Oak, Michigan, agrees that it is crucial that clubs stay together for a significant period of time; otherwise, their potential to achieve long-term gains will vanish. "If club members can be persuaded to continue even during long down periods, you are virtually certain to purchase stocks at bargain prices and profit handsomely when prices move upward."

A buddy system can be one way to keep members active and interested. Your club can form teams of two or three members who meet outside of the monthly meetings to do the research together, and then present their findings to the group.

The Black Women Investment Corp. in Raleigh, North Carolina, used another strategy to keep members motivated: training programs. Every partner is required to complete a short session each month and attend an annual program that could last one day or six weeks. The sessions cover a wide range of issues, such as using library resources to investigate companies, finding information on-line and using NAIC tools to analyze and select stocks. "Last year, we had six three-hour sessions because we had new people who wanted to join the club," says Saundra Wall Williams, past president of the investment club and an NAIC council president for the eastern North Carolina region. "Before a new partner can join, we require her to take the training. This way, she is clear about what she is getting into. We started out with nine women who wanted to join the group, but after the sessions, only six decided to sign on," adds Williams.

Launched in 1988, the Black Women Investment Corp. is made up of 15 women who represent various professions from educators to engineers and range in age from 25 to 55. According to the club's bylaws, members must attend 75% of the meetings throughout the year, although there are no penalties or punishments inflicted on no-shows. "I know of some clubs that charge their members fines if they don't come to a meeting or if they are late," says Williams, co-editor of the Wall Streetwise newsletter. "One club charges late members a dollar a minute. So, if you show up 10 minutes after the scheduled time, then that's $ 10 out of your pocket--even thought it goes into the portfolio. Another club stipulates that if a member misses three meetings out of the year, [he or she] is put out of club. Or if you don't present a stock at least one time a year, you are out of the club."

Williams and other NAIC council directors point out, however, that such measures are somewhat harsh. The idea is to bring together--from the start--people who are willing to work together and are committed to the club's success. That's why it is also important to make sure the club's partnership agreement clearly states members must attend a set number of meetings and must recommend a stock a certain number of times a year.

2. Provide ongoing education.

Initially, each member brings a different understanding or level of knowledge about the stock market to the group. And, logically enough, the most knowledgeable members tend to be the most committed to the club. With that in mind, it's in your club's best interest to continuously increase members' knowledge about investing.