When Gordon Sparks and four of his engineering students formed an investment club in 2001, holding meetings was easy: They'd head down to Mr. Sparks' basement in Saskatoon, where they'd drink beer and talk stocks.
Plenty has changed since then. Stocks have suffered two brutal bear markets. Commodities have soared to record highs, then collapsed. Adding to the club's challenges, three of its five members have since moved to other provinces.
And yet, for all the financial and logistical hurdles it has faced, the TrailMix Investment Club is still going strong eight years later - a remarkable feat considering most clubs crash and burn after a year or two.
What's their secret for keeping it together? They've stuck to a disciplined investment plan, and used technology to stay in touch. They've also managed to make money even in the midst of roller-coaster markets.
Now, instead of getting together in person, they meet online for about three hours every three months. "Everyone's got a mic and a headset and we can view each other's screens," says Mr. Sparks, 66, a professor at the University of Saskatchewan. "And we still have a cool one sitting on our desk."
Even in good markets, keeping an investment club together can be a daunting challenge. Investment goals sometimes clash, pitting buy-and-holders against traders. Some members may be more interested in socializing than in crunching numbers. Occasionally, people get on each other's nerves to the point that sitting in the same room is unbearable.
The No. 1 reason clubs break up? They lose money.
"When you have the whole market tank [like it did recently] it can be hard on clubs," says John Bart, whose company, ShareOwner Education Inc., provides resources to dozens of investment clubs.
But as the TrailMix example illustrates, it's possible for a club to thrive through good markets and bad. If you're thinking about starting an investment club, or wondering how to keep your existing club from falling apart, here are some tips to keep in mind:
Keep The Yawns
To A Minimum
The Riverside Club in Vancouver has been operating since 1953, making it one of the longest-running investment clubs in Canada. Club secretary Ross Collver, 75, says one of the keys to its longevity is that the club invites guest speakers six or seven times a year to keep meetings interesting.
Recently, the club invited someone from a local credit union to discuss Tax-Free Savings Accounts. Another time, a broker talked about retirement income products. The guests get a free dinner at the Point Grey Golf and Country Club, where the Riverside Club meets. And members get valuable investment advice.
"Without the guest speakers, I think we would be floundering," Mr. Collver says.
Only Serious Investors Need Apply
If you want your club to survive, you have to choose members who are committed to the cause. "I can't stress enough that members should be vetted for their interest to make sure they are truly interested in investments ... and not just there for the dinner," says Lyle Norlander, 71, a former president of the Riverside Club.
When the club has an opening for a new member, it holds a secret ballot that requires 75-per-cent approval, he says.
Share The Workload
The quickest way for members to lose interest is if they have nothing to do, or if a handful of people are carrying most of the weight. "You don't want a club where people aren't taking an active role in the decision-making process," Mr. Bart says. Eight to 12 members is ideal, because the work can be spread around without the numbers becoming too unwieldy, but smaller or larger groups can also work. The important thing is that everyone should be involved.
Technology Is Your Friend
Without the Internet, keeping a club together when members move away would be impossible. The members of TrailMix - who now live in Saskatoon, Calgary and Vancouver - use a web conferencing program called GoToMeeting, which allows them to talk and share information in real time.
There are drawbacks to meeting online. "It isn't as much fun, I'll put it that way, in the sense that we used to tell stories and joke around," Mr. Sparks says. On the other hand, they get more work done "because we're less likely to get off track."
Have A Game Plan
Many clubs stumble because they don't have an investing strategy. They chase hot trends when prices are peaking, or they sell after the market has tanked, locking in big losses. In short, they make the same mistakes individual investors do.
The solution is to decide on an investing strategy, and stick with it.
The TrailMix Club uses stock selection software from ShareOwner to identify companies with growing sales and profits that are trading at attractive prices. Mr. Sparks is pleased with the results: Since inception in early 2001, the club has faced two bear markets but still racked up an average annual return of about 3.4 per cent, beating indexes such as the S&P/TSX and S&P 500.
Another strategy might be to invest in companies that raise their dividends regularly, or to focus on underpriced value stocks. A club that changes strategies frequently, or has no strategy to speak of, is asking to fail.
On the other hand, a club that chooses members wisely, agrees on a plan, keeps its meetings interesting and makes sure everyone participates will have a better chance of surviving than most.
Read this column on the new Globeinvestor.com site.
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