Move over, Beardstown ladies. Orange County, Calif., has its own Huntington Beach ladies. And the Yorba Linda men. And more than 200 other...
SANTA ANA, Calif. — Move over, Beardstown ladies. Orange County, Calif., has its own Huntington Beach ladies. And the Yorba Linda men. And more than 200 other groups of friends and family members who have teamed up to form investment clubs.
The Beardstown ladies — 16 women in Beardstown, Ill. — put their town and investment clubs on the map in 1993 when they immortalized their investment club’s success in a series of books. Although an audit later proved that their 23 percent-plus annual return from 1984 to 1993 was actually only 9.1 percent, the idea that a bunch of middle-age women in the Midwest could make money in the markets — before the bubble — gave investment clubs a boost.
Investment-club membership took off in the late 1990s along with the market, peaking in 1998 when 37,129 clubs were registered with Better Investing, formerly known as the National Association of Investors Corp. But then the market crashed and interest in investment clubs dropped like most of their previously high-flying investments.
But the idea of getting together with a group of friends to socialize and invest, first formalized more than 50 years ago by what was then called the National Association of Investment Clubs, never died. Although membership has continued to tumble because of what Better Investing officials believe is a fear factor created by the crash, the group still had 19,646 clubs registered in 2004.
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Now, as more people find themselves invested in the market via 401(k) plans and IRAs and facing the prospect of investing a portion of their Social Security on their own, investment clubs offer a way for novices to learn about markets.
Some are social, or not
Interest in investment clubs was evident last month when more than 100 people gave up a Saturday to attend a fair organized by the Orange County chapter of Better Investing.
Total clubs: 19,646
Types of clubs
For women only: 54 percent
For men only: 8 percent
For men and women: 38 percent
Averages per club
Member’s monthly investment: $84
Club’s monthly investment: $927
Total NAIC membership worldwide: 220,074
Women: 66 percent
Men: 34 percent
Individual members not associated with a club: 27,060
Median member age: 55.8 years
Average household income: $114,000
College and/or advanced degree: 72.2 percent
Average time a stock is held: 4 years
Source: National Association of Investors Corp.
Among the attendees were people like Sai Pratap, an information-technology manager from Cypress, Calif., who was looking for an investment club to join.
“I’m totally new to the stock market so I have to start from scratch,” he said.
He had already taken an investment workshop sponsored by CNBC but balked at the idea of spending several thousand dollars for the computer program offered.
Pratap thought an investment club under the auspices of Better Investing, which provides education and technical support to clubs and individual investors, would give him the help he sought. His one requirement: He wanted a club that is serious about investing.
“It’s not for a coffee klatch,” he said.
Based on that, he probably wouldn’t be interested in the La Habra Investment Club Partnership, which just celebrated its 10th anniversary and told the Better Investing fair, “The only thing that holds a club together is pie.”
Jorge Fuentes, a retired aerospace engineer who organized the Yorba Linda Investment Club with friends and families 15 years ago, said his club is a mixture of work and fun.
“During the good years, we had a party and spent part of the profits,” he said. “Then the market crashed and [now] we try to shy away from the annual trips and parties and get everyone back on track.”
The club, like many during the boom years of the late ’90s, moved from investing in blue-chip stalwarts like General Electric and Procter & Gamble to buying stock in Cisco, Dell and Lucent.
A learning curve
“We were doing great until the crash,” said Fuentes. “We kept on holding them until they were just in the single digits.”
The painful lesson was one that many clubs learned, but Sylvia Van Houten, organizer of the Honey I’ve Got the Money investment club in Huntington Beach, says that’s all part of being in an investment club.
“An investment club isn’t for making money,” she said. “It’s to learn how to make money.”
Learning is really what it’s all about, said Kenneth Janke Sr., chairman of Better Investing. Studies show a new investment club with 15 members typically only has one member who knows anything about investing.
“After five years, 14 of the 15 have their own accounts and are investing on their own [in addition to the club],” Janke said.