Investment clubs are groups of individuals who meet up together to talk about investing. Many times these are amateur investors who meet up with other investors to learn about investing techniques and to get advice and tips. Sometimes the group will have a common pool of funds to invest and make group decisions on how to invest the money but sometimes the group exists simply to exchange information and learn from each other. Most of the times the investment club doesn't have to register with the SEC, but there may be reasons why it would. The SEC investment club page
has more information.
Types of Investment Clubs
Investment clubs can take many forms, but they tend to be formed based on a common theme:
- types of assets - some investment clubs deal with certain types of assets, such as a real estate investment club, or stock market investing.
- types of strategies - some clubs only deal with certain types of investing strategies, such as: CANSLIM investing, option trading, or swing trading.
- demographics - some clubs deal with only certain demographics.
- college kids - college have similar financial characteristics (a higher tolerance for risk, no mortgage or kids to worry about).
- women - these are one of the most popular types of investment clubs since they also promote financial independence.
- wealthy people - wealthy people have specific financial issues which non-wealthy people typically don't deal with (like complicated estate issues). TIGER 21 is one of the most well-known investment clubs for high-net-worth investors. Founded in 1999, TIGER 21 is headquartered in New York City, has 185 members, and manages about $15 billion in assets. Their annual membership dues are $30,000 per year.
- community - there may have be investment clubs that are comprised of people form a specific geographic area, or workers (or former workers) from a particular company.
Because all investment club are social groups as well as financial, most investment clubs are formed simply due to people knowing other people within a community. And, like all social situations, you have to deal with different personality types and egos. Like any group situation, there will be people who contribute less or don't do their share.
Although there are tons of online groups that talk about investing, these are typically not referred to as "investment clubs" since they are so informal and unstructured.
Many investment clubs participants have a sense of pride when it comes to their involvement with investment clubs. But I look at participation in an investment club as a glaring weakness instead of a strength. You need to look at your investing as a business - because it is one. If you owned a business would you get together with a group of people in the community to talk about how to run it? If you don't know enough about the business to run it yourself then you have a lot more learning to do.
It is easy to make the decision to learn. It is hard, however, to look at the spectrum of educational resources available and choose the one that will help you the most. This is because many of the educational resources available don't offer anything that ends up being really helpful. When people talk about investment clubs they note the benefits of sharing information and collective resources. But in most cases, the members of investment clubs are mediocre investors and there is no value in participating in them. If I had a choice as to how I would spend my time learning about investing, I would rather spend one hour reading a book by Peter Lynch or Warren Buffett than spend 40 hours at an investment club.
There was a best-selling book called "The Beardstown Ladies' Common-Sense Investment Guide"
published in the mid-90's by The Beardstown Ladies, an investment club of older women from Illinois. In the book, the ladies claimed an annual return of about 23% on their investing, but a couple of years later some journalists who looked behind the numbers pointed out that their return was actually closer to 9%. The publisher got sued and lost. The fact that the members of the club couldn't even do the high school math required to properly calculate the returns on their money says something about investment club participants.
Investment clubs are fine if you are an absolute beginner. After all, you have to start somewhere. For example, the very first investment book I ever read was completely worthless, yet it served as a doorway into the investment world. But investment clubs are something that should be quickly outgrown if you want to become a successful investor. One of the defining characteristics of a successful investor is the ability to think independently and not care what other people think. Making investment decisions within a group environment enforces a mentality completely opposite to this.
If you are going to join an investment club, my advice is to not join an investment club that pools money. Getting yourself financially entangled with other people is incredibly naive. I read somewhere that if individuals don't pay the tax that they are due, then the club is required to pay. I'm not sure if this is true or not. But these kind of risks are needless risks. Aside from risk, the amount of paperwork, tax filings, and accounting, can also become burdensome. As a student of the markets, you want to spend your time learning about investing - not learning how to run an investment club. If you do decide to join an investment club, join one that is strictly a discussion group. There will be lower the risk and fewer headaches. Besides, the value is in the ideas and knowledge.