How Are Investment Clubs Holding Up in the Current Market?
In Doug Gerlach's April 2020 Investment Clubs webinar, he surveyed club members about the market. Here's what they told him.
At my monthly Investment Club webinar in April 2020, I asked attendees how they were faring in the current economic and market climate. The COVID-19 pandemic has caused businesses to close, unemployment to rise, and market volatility to increase. Individual investors are rattled.
The good news is that the investment club members who participated in my survey showed few signs of discouragement. Most of our investment club customers follow the precepts of BetterInvesting (the parent company of ICLUBcentral and myICLUB.com). These clubs focus on long-term capital appreciation from stocks selected with a buy-and-hold perspective. They understand that short-term market volatility may be uncomfortable, but it does not impact the long-term potential of the stock market to deliver superior returns.
I asked club members what they expected to do about their next scheduled club meeting. The vast majority, 76.5%, said that they plan to hold their next meeting online using a remote meeting solution. 5.9% were holding out hope that they could meet in person, while 17.6% were still undecided. Clubs are trying to maintain a steady course despite the hurdles.
Club members are not holding back on their monthly club dues. 65.0% of club members said members were maintaining their investments at the same amount. 32.5% were increasing their club investments to take advantage of lower stock prices. Only 2.5% reported that some were decreasing their club payments in the wake of the pandemic. My long-standing recommendation to investors and club members is to increase their regular investments to 401(k) accounts or investment clubs during periods of market downturns. It's good to see club members focused on what their newly-purchased units are likely to be worth in a year or two instead of how much their current club units have decreased in value.
I asked if some club members have problems focusing on the long-term. The vast majority, 75.0%, reported that club members are more or less unified in their approach. 19.4% struggle to keep everyone on the same page about their portfolios. 5.6% reported that maintaining a unified face had only recently become more difficult.
Club members said overwhelmingly that they are shopping for bargains in the market. 87.5% are looking to buy more good stocks at low prices, indicating an understanding of the difference between the short-term and the long-term when considering stocks. 12.5% were sitting tight until the market picture clears up before taking further action with their portfolios. None indicated that any wholesale selling was in the cards at this point.
Finally, I asked club members what they expected for the rest of 2020. It's a good sign that clubs are not exceedingly sanguine about a quick market and economic recovery. 50% of respondents expect the market to get worse before it gets better. 44.4% believe there is too much uncertainty to have any idea about how the market will perform in the rest of the year. Only 5.6% thought that the market has seen its worse and it's only up from here. I interpret this recognition of the potential near-term risks of investing in stocks as especially astute. Individuals and investment club members are often portrayed as "unsophisticated" investors, but the club members in my survey group showed a clear understanding of market dynamics. They know that the stock market is unpredictable in the near-term, but also that there are downside risks to investing in stocks that cannot be ignored. Their willingness to stay the course and ride out near-term uncertainty and focus on the long-term potential is exactly the right perspective needed right noe.
I have often said that the collaborative nature of investment clubs makes them less susceptible to taking brash actions out of panic. At the same time, this makes them more likely to be deliberative in their portfolio decision-making. Together, these two tendencies are key to successful stock market investing. Judging by the responses of the investment club members in my survey, these drivers of long-term portfolio success is firmly in place.
- DOUGLAS GERLACH