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Building Wealth: Investment Clubs - Ladue News: Business & Wealth

Building Wealth: Investment Clubs

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Posted: Thursday, August 20, 2009 12:00 am

Step aside, Oprah. Book clubs aren’t the only organized gatherings popular these days. Undeterred by the ups and downs of the economy, St. Louisans are participating in investment clubs, small groups of individuals who meet regularly to pool their funds and invest in a club portfolio.

Carolyn Kolman, a former teacher, joined ‘Women of Wall Street’ about five years ago. “I wanted to educate myself about the stock market and the business world,” she says. “I’m proud to say we’ve been very successful with our portfolio, even during the downturn. We’ve been very careful: We do our homework and don’t take a lot of risks. We have a serious, long-term approach.”

The club, originally started by a few friends in 2003, is now 24 women strong. “We’re not taking any new members, this is the perfect size,” Kolman says. The group meets at a different member’s home each month, except in July and November. “We have annual holiday and spring luncheons, and we occasionally take educational trips, for example, we recently went to Chicago to visit the stock exchange,” she says. “It’s a nice mix of business and social.”

But the emphasis is definitely on business. Before every gathering, the group’s investment committee meets with broker David Patritti of J.A. Glynn & Co., who reviews and evaluates the club’s portfolio and makes recommendations. “Then the committee reports back to us, and we discuss what we want to buy and sell,” Kolman says.

According to the National Association of Investors Corporation, the number of investment clubs in the U.S. has more than doubled over the past three years, and 43 percent of clubs that belong to NAIC regularly outperform the S&P 500, a record that the majority of professional mutual fund managers can’t beat.

“Investment clubs can be an ideal situation for beginning investors, because they’re a great way to learn about the market,” says Norm Conley, CEO of J.A. Glynn & Co. “Clubs offer the structure and support that most beginners need, and also make it possible to get into the market without a huge initial investment.”

If you’re interested in starting a club, keep it simple, Conley advises. “You’ll have members at different levels of experience and assets, so you’ll need ground rules,” he says. “Every stock considered for purchase should meet three basic criteria: it should be profitable; it should be from a reputable company with a recognizable name; and it should contribute to a diverse, well-balanced portfolio.”

Don’t be lured by trendy stocks, he continues. “One or two ‘fliers’ unknown, cheap stocks that you hope might double quickly, aren’t a big deal in a portfolio of 20 to 25 stocks,” he concedes. “But basically, you want your portfolio to look like a mini version of the S&P 500 weightings, evenly distributed among a range of sectors or classes. Don’t overdo tech or energy stocks, for example. Don’t swing for the fences; aim for steady growth. You want the club to be fun and educational, not high stress.”

Club member Kolman agrees. “We’re interested in turning a profit, sure, but it’s the educational aspect that means the most to us,” she says. “We’ve learned so much about how to analyze and evaluate a company’s performance and how to determine whether to buy or sell. Now when I check the news, I think about how events might affect national and global markets and emerging economies. The experience has given me a much stronger sense of how everyone in the world is connected and interdependent.”

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