Dec 12 Not that long ago, it seemed like
everyone belonged to an investment club. People would gather at
a friend's house, share a few bottles of merlot and toast their
soaring investments in Cisco and JDS Uniphase .
And now? Not so much. The number of investment clubs
reached 60,000 before the bursting of the tech bubble. Now
there are just about 5,500 still hanging on nationwide.
"Oh, the numbers are definitely down," says Adam Ritt,
communications director for BetterInvesting, the Madison
Heights, Michigan-based investors' association whose members
include clubs around the country. "It's been a steady trend
downward for a long time."
Atlanta's Patti Ghezzi was one of those investors who
decided to pull the plug on her club. She had originally banded
together with around 16 friends to form the "Bullmarket Broads"
back in the late '90's. "It was so trendy back then," says the
42-year-old communications consultant. "I knew of some clubs
that did nothing but make money for years. Nothing ever went
Fast forward 10 years, and the Bullmarket Broads had
dwindled to six die-hards. Some members had moved, some had
growing families and shrinking free time, and some were
discouraged by the stock market's 'Lost Decade' and its
multiple equity busts. "It got to be kind of comical," says
Ghezzi. "We'd buy a stock and it would go down, and then we'd
sell and it would go up. We used to say, 'Let's get together
for our monthly meeting and figure out how to lose more
As a result, club members finally decided to call it a day
in 2009. "In the late '90s, many of my friends were in
investment clubs," says Ghezzi. "Now, no one I know is. We're
in book clubs instead."
There are a few reasons behind the dwindling number of
investment clubs. One is the stock market itself, which hasn't
exactly been a model of calm and consistency over the past
decade. As a result, nervous retail investors have pulled
$101.6 billion from domestic stocks so far in 2011, according
to the Investment Company Institute. "There's some fatigue
with the market," says Ritt. "People don't like being
whiplashed all the time."
But that's not the only reason investment clubs might be
going away. In the old days, says Ritt, people often divvied up
the heavy labor of stock research, digging into annual reports
and making presentations to fellow members. Now, with the array
of investing sites available - from Yahoo Finance to
Morningstar - people can crunch numbers and perform their own
stock screens with a few clicks of the mouse.
There's also the little matter of money: We just don't have
as much of it as we used to. Indeed, Americans have $1,459 less
in per-capita disposable income than they did in the second
quarter of 2008, according to the Commerce Department's Bureau
of Economic Analysis. With a shrinking net worth and standard
of living, Americans can no longer speculate on stocks with
buddies. That $50 or $100 a month might be better put towards
the mortgage or food.
Portfolio performance might have something to do with it,
too. Research suggests that getting a bunch of investors
together doesn't tend to improve returns. One study by
academics Brad Barber and Terrance Odean, "Too Many Cooks Spoil
the Profits," found that the average investment club lagged a
broad market index by 3.8 percent a year.
"From an investment perspective, it's a completely
counter-productive exercise," says Dan Solin, author of books
like "The Smartest Portfolio You'll Ever Own." "People
shouldn't be misled into believing this is a great way to
increase returns, because it isn't."
Which isn't to say that investment clubs shouldn't exist.
Just think of them as primarily social - a reason to gather
with friends, to learn a little about the markets, to share
that 2005 Bordeaux. Once you let go of any get-rich-quick
expectations, and stop assigning blame for bad stock picks, you
can preserve friendships and enjoy investment clubs for the
social gatherings they are.
"Keep the stakes low, and don't take it too seriously,"
advises Ghezzi, who chipped in a modest $30 a month to her
investment club. "Most of all, don't be unrealistic and expect
to make a ton of money. Those days are over."
The author is a Reuters contributor. The opinions expressed
are his own.