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4 steps to picking an investment club

By Joshua Wong

4 steps to picking an investment club

Before the dot-com bust of the 1990s and way before the recent recession, I was asked by a co-worker if I wanted to join an investment club. I had often heard him and others discussing stocks during lunch breaks, and it was always a lively conversation that was fun to join.

The group of about a dozen people had an opening for a new member--as most investment clubs do when a member leaves--and he thought I'd be a good addition to the club. I wasn't looking for investment tips or for ideas on how to invest online, but for a chance to learn about stocks with people I knew.

As a "value investor," it was the perfect club for me because one of its top goals was education while investing for the long-term. I wasn't looking to get in and out of stocks to make a quick buck, but wanted to invest in companies for a year or more that had solid fundamentals to their businesses.

I was in the investment club for a few years before leaving, determining that I had learned enough and that the Saturday morning meetings no longer contributed much to my investment education. I had reached a saturation point and was ready to move on.

Investment clubs allow groups of people to pool their money and buy stocks or bonds through a broker. For usually less than $100 a month, members contribute to a fund and decide as a group what to buy.

Along with learning how to invest, there were plenty of other things I learned in joining an investment club. Here are some of them to consider when joining:

  1. Join with friends

    You'll probably be spending at least an hour a week with the group, and while you don't want everyone to have the same viewpoint, it's a good idea to at least know a few people in the club who you trust. After all, you're giving a fair amount of money to the club each month, and you want it to be safe and you want to have a good time.

  2. Go long

    Investing with a short timeframe--less than a year--requires quick decisions that shouldn't be made hastily with a pool of money. The club's goal should be for long-term investments that help members learn about investing, not to make a quick buck. Three to five years is best, and high membership turnover by people who only want to make some fast money won't help investments or club morale.

  3. Get professional guidance

    Our club was a member of the National Association of Investors Corporation, or NAIC, which provided excellent learning tools to gauge how stocks were doing. The NAIC offered standardized criteria so that we were using objective tools to measure a company's success, such as a price-earnings ratio. Our club was doing "value investing" and researching stocks that are undervalued. It's an investment strategy I still follow.

  4. Make education a top goal

    Profits will be a good byproduct of an investment group that educates its members. Don't get caught up in trying to make as much money as you can, as quickly as you can. Learning how to invest takes time. If you want to make money instead of learn about the stock market and businesses, then go find a broker to help you pick stocks. You'll do it a lot quicker than by having to do research in an investment club.

Eventually, as with many clubs, your interest will wane and you'll want to move on to something else. But be sure to start with a commitment of at least a few years. It will take that long to learn enough about investing and will reward you with a lifetime of investment tips to try out on your own.

When I left my investment club, I took the profit I made and invested it on my own in a value stock that I still own. I'm still watching it grow.

 

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