Investment Clubs

Investment clubs, like many other things, offer much promise — if you successfully avoid a few obstacles. Lest any Fool be caught off guard by these obstacles, we offer some words of warning below.

The Pitfall of the Pernicious Co-Member

The Entanglement of Ennui

The Jeopardy of Jelly Donuts

Club members can tire of the same snacks each month. Try new treats. Perhaps refreshment duties should be rotated among all members. Don’t let your fellow members fall into a not-jelly-donuts-again stupor.

The Snare of Subterfuge

A club that isn’t paying attention might find itself derailed by a member who has veered off toward unsound investing principles. Be vigilant. If a member is all excited about some article that sings the glories of technical investing, or a friend’s enthusiasm over a particular penny stock, be careful. Stick to the fundamentals, such as a company’s earnings, growth, competition, and future. Otherwise, you might wake up one morning and find that your club’s portfolio has half its funds invested in South American gold mining ventures!

The Booby Trap of Time

Investment clubs take time. Make sure that you and your fellow members have the time to devote to it and are willing to devote that time. If you figure about one to three hours for a monthly meeting and two to four hours of research or work preparing for the meeting, that comes to three to seven hours that you’ll have to commit each month. This is probably manageable for most people, but make sure that everyone has clear expectations. Broken up, it could be two or fewer hours per week.

If this still sounds like a lot of time, consider the alternative. If you want to invest successfully, you’re still going to have to spend some time researching stocks and following companies you’ve invested in. For many people, participating in an investment club isn’t adding significantly to the amount of work they’d do anyway. And remember that you also reap the benefit of the hours of work of many other club members.

If you’re worried about the math involved in investing itself, don’t. Yes, there’s math involved in investing. But it’s pretty much just good old addition, subtraction, multiplication, division, and percentages. Calculus, trigonometry, and logarithms are not required.

The Hazard of Humorlessness