How to start an investment club from start to finish. We had our monthly investment club meeting this week. We formed the club about five years ago and have come a long way. If you are interested in starting a club of your own, here’s some of the information from the handout at our first meeting to get you started.
Philosophy and goals (Rules and Expectations)
Use the Official Guide from the NAIC: Starting and Running a Profitable Investment Club by Thomas E. O’hara and Kenneth S. Janke. This book provided the framework for getting our club started. It was very helpful to teach us the skills we wanted everyone to learn and how to run our club. We focused on the chapters on Investment Philosophy and Security Analysis first, but covered them all eventually.
We joined the National Association of Investment Clubs (NAIC) at first, but are no longer members. It included educational seminars and opportunities through out local chapter that were beneficial in the beginning.
Goals of Investment Club
- Double our money every 5 yrs (14.9% CAGR)
- Education, learning and participation
- Evaluate stocks based on NAIC stock selection guide method.
- Invest regardless of market conditions. (Dollar-cost averaging)
- Reinvest all earnings.
- Invest in growth companies.
- Diversify to reduce risk.
Long term Approach. A short-term, speculative approach to investing has not been successful. Investment clubs that have had a long-term investment outlook have done well. However, because of the learning curve and initial expenses, clubs may lose money at first. See our investment club portfolio and returns.
Responsibility. All club members will investigate and analyze stocks and make periodic reports.
Time commitment. During the first year, three or four hours a month will be needed. It will go down to about an hour of preparation after the evaluation techniques are learned.
- Discuss Operations and Adopt Bylaws
- Decide Amount of Monthly Deposit
- Elect Officers
- Individual Assignments:
- Prepare a report of a corporation on the NAIC Stock Check List. (ch. 7)
- Prepare a report on the same corporation on the NAIC Stock Selection Guide. (ch 8-10)
- Treasurer Assignments:
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I’ve never been involved in an investment club. Question: are you investing individually, or does everyone pool money together into one account?
The money is pooled together, but each person’s contributions are tracked at a unit level. It’s similar to owning shares in a mutual fund.
Isn’t doubling your money every five years a very aggressive goal?
Aggressive… yes! But it makes it a lot more challenging to shoot for. If we were willing to settle for something less, we could probably just invest in index funds.
It also makes it much easier to evaluate companies. If we don’t calculate the returns at or above 15% we can eliminate the company from our research.
So how has that worked out for you?
I had a mediocre experience with my investment club. I learned a lot from the guys I started with, as our charter allowed from everything from credit spreads to employing hedging strategies. However, in the end, we realized that the time commitment to completely track each holding was not conducive to a part time monthly meeting. For some, it might work out OK, but we had people having kids, starting B School, etc. and it just wasn’t working.
I applaud your ambitios 15% annual return objective; we actually had a similarly ambitious goal. In the end, statistics were not in our favor, as we could kill the market on the way up and then we were crushed on the way down – It’s all about the BETA.
Good luck and please post some of your club’s favorite holdings. I’m glad you posted this; I routinely harken back to my i club days at Everyday Finance, but I never got around to doing a full post on it with some of the tools we employed, etc.
@ MIT Beta and Dan:
I’m putting together another article for later today that will show our portfolio and returns… be sure to check back!
i appreciate having a sense of having “teammates”, particularly if they really are going to help with the heavy lifting, but there is just no way in hell i abide by majority decision when it comes to investing my money.
investing clubs significantly lag their benchmarks, one reads. something about high transaction costs. no doubt this particular club is an exception.
Luckily we use Scottrade, so we have very little in terms of transaction costs, only $7 a trade. The only other cost we have is our Bivio software. We operate on the cheap!
I’m interested in starting an investment club, but i still need a little direction. As of now i’m having difficulty with the club charter. Is there any way to get ahold of a sample charter for a rough guideline?
can i get a PDF format of how i can start an investment club ?
If a member wants to get out of the club, is it okay to charge them a departure fee if we have to liquidate a position to pay them off?