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Investment Clubs: Why the Decline?
The other day someone brought up investment clubs and wanted to know my thought on them. Since one person asked, it is safe to assume to some degree that there are others who might want to know a few things about investment clubs and my opinion of them.
In general investment clubs are made up of a group of individuals who pool their funds together to make investments. Typically they are formed as partnerships where the members study various investments, meet regularly and the group as a whole votes and decided to buy and sell investment instruments (stocks, mutual funds, bonds etc.) based on the majority vote. The investment clubs also has to keep minutes of the meeting and investing activities along with filing a federal Form 1065, US Return of Partnership Income each year. Plus each member of the investment club must report on their individual tax return their share of the club’s income, gains, losses, deductions and credits
Members of a group can be a group of dentist or a dozen of women in their 50s and 60s, to a close group of friends that like investing. Many club members like the social aspects of meeting each month, it is fun and they make money to boot. So what’s not to like you might ask. Investment clubs became popular back in the mid 1990s. Their ranks climbed to about 500,000 members.
However, today their ranks have declined to about 39,000 according to some reports. In fact, if you go to the National Association of Investors Corporation also known as BetterInvesting website that promotes and investment clubs and do a search using the select by state function for the state of South Carolina. You will see there is only one Investment Club in the entire state. So what accounts for this rapid decline in the popularly of investment clubs?
With most down falls, typically it is not because of any one items, but a failure due to a number of items in total that accounts for the demise. The reason vary based on who you talk too. But based on some research, we have found a few items worth noting. Failure occurs for several reasons that include: weakness in leadership, lack of members commitment, poor investment approach, lack of a formal meeting agendas, leaving most of the work to one or two members who over time grow tired of doing all the work, finding a time when all members could meet, personality conflicts, confusing a tip from a cocktail party with real research, too much social chit-chat take away from discussing important matters among others.
Some believe that most thought being in an investment club was fun. But, later during the financial crisis when many lost around 40% it was no longer fun. Also, many liked the social aspects of monthly meeting. Some folks have said, “The problem, as any investors and investment-club members see it: Stocks aren’t fun anymore; they are scary.”
I’d like to mention, that when you have a group of individuals you typically experience what it referred to as “group think.” Basically, as a group makes decisions it tends to discourage creativity and individual responsibility. Both factors are very important in making better investment decisions. Another aspect that might have contributed in the down fall is the composition of the members of the group. Most groups have similar traits which elements the probability of looking at an investments from all the different perspective. For example, what bonded them together as a group could be the same attributes that hurt them? Take a group of 50 and 60 year old ladies most likely shared some common background and experiences which could help them in say the consumer sector, but not so much in the technology sector and maybe the group would do better at investing had the group had a mix of folks with a mix of other individuals with a broader range of experiences and backgrounds. Furthermore, some consideration should be given to expertise in equity analysis. It would be highly unusually to find a group of 20 or so individuals that all had a high degree of expertise in security analysis or researching stocks. Meaning many of the members would just go along with a few that had some knowledge.
In summary, in contrast to investment clubs, with Port Wren Capital, LLC, we provide an investing alternative. There is no minimum investment amount, we never handle your funds, you don’t have to attend monthly meetings, keep meeting minutes or vote on what to invest in. So why put yourself through all that when you have a better investment solution.
One of the many benefits of our investing service is we seek higher returns using individual stocks to invest our on capital. Plus we can help you with the research. Our research is designed to give you the information on which stock to buy and at what price and when to sell it and at what price to obtain higher returns. We find specific investment opportunities using security analysis research to find undervalued opportunities for our subscribers in our PWC STOCK REPORTSSM service. And you too can reap the rewards.
At Port Wren Capital, LLC, we specialize in picking specific undervalued U.S. stocks using fundamental analysis developed by Benjamin Graham using a five step process. We have beaten the S&P500, DJIA and NASDAQ benchmarks since we started 5 years ago on our own investments. Discover the difference for yourself. To learn more contact us today.
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