Start an Investment Club

By TheWild1 at 14 October, 2007, 11:45 pm, Categories : All About Business

Get a group of people together and start making money. Well… it takes a little bit more work then that. For people that don’t know, an investment club (usually) is a group of people who each chip in money to a shared portfolio in hopes of making money off the stock market. Profits are then distributed among all investors. Participants of the club meet in order to analyze what stocks to buy. Number of meetings varying on how serious your club is. Some clubs meet everyday while others might meet just a couple times a year. It really depends on what type of return the club is expecting.

What type of people should be in my investment club?

Same type of traders:
If you like to build positions and hold onto stocks for a while, then most likely you probably won’t work well with active traders. Although both traders final goal is to make money, each type of trader has different principles and methods to try and achieve that goal. For example, on a quick drop in stock price an active trader will want to get out of the stock and quickly jump into another, while a more long-term trader might see that loss as a chance to build on their position.

Same experienced and knowledgeable traders:
Many people might ask “why should this matter?” The key motive of an investment club is to utilize other members in order to collaboratively build up the portfolio. If I knew more then everybody in my club, then why wouldn’t I just continue to invest on my own? Obviously, it would be much easier. Another reason you do not want to start a club with less knowledgeable traders is that on bad plays all they will see is the loss because they probably never even understood the trade and they would just point blame at you. On the flip side, it might seem like a good thing to join a group with investors that know more then you do; however, those other traders will see that you are not at the same level as they are and will try to enforce all their ideas.

People who share the same objectives:
This is pretty simple. You don’t want to be in the same club as somebody who is just looking for some extra cash if you are looking to solely live on the returns your club sees. Most likely they won’t want to invest the same amount of money or time.

Lets get it started

Plan:
When first starting an investment club do not contribute any money until a plan has been achieved. The club should know stuff like:

What kind of returns they want?
What type of trading methods do you want to use?
What is the vision of the club?

Take Action:
Make sure there is a leader or somebody that will take the initiative to take care of the minor yet important tasks. They might need to find a location, make contacts, or help on technical work. Make sure that person is competent and is not the one who needs to be reminded all the time.

Equality:
Every member should contribute the same amount of money into the portfolio. A person who has more money in the portfolio might think they have a bigger say or more power.

Construct a set of rules and guidelines:
Together has a club come up with some rules and guidelines that all member must abide from. Have every member sign it. This is a good way to enforce members in case they want to back out or go crazy. It also does a good job of making sure everybody is on the same page.

Get an auditor:
Probably the most important aspect to just keep your club moving. Have somebody with accounting skills deal with the handling and distribution of money.

Make Money:
If not, then whats the points.

What do you think of an investment club?

Extra Insight

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