Education > Investment Clubs
Investment Clubs
Introduction
Investment clubs are groups of invidividuals 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.My Opinion
Many of the people you meet that participate in investment clubs refer to their participation in them with a sense of pride 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 many times the members of investment clubs are mediocre investors and there is no value to be extracted by participating. If I had a choice 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 they 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 the return was more around 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 very successful in the markets. 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.
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