Don't Let Fear Infect your Club

Investment club members today are much more realistic than they were at the turn of the millenium. No longer do they expect a stock to double overnight. No longer is a 15% annual return considered a bad year. This realism is good for the stock market and good for investment clubs in general, but some clubs are experiencing a massive amount of fear from individual club members. Seeing their hard-earned money evaporate is causing some clubs and club members to think twice before investing.

Some fear in your club atmosphere can be positive. It helps clubs to think twice before investing in certain stocks, which usually creates more communication between members. Outside of this, fear can be destructive for a club. All it takes is one member voicing serious concerns about the club. This can cause a domino effect of uncertainty about the mission of the club.

Before this fear infects your club, be sure to communicate the following points at the beginning of your next meeting (if you have not already done so):

  1. All contributions to the club should be marked as "not to be disturbed for at least 5 years." If club members are seriously concerned about losing money in the near-term, they should not be investing in the stock market. Leave day trading to the gamblers and mutual fund managers. Investment clubs invest for the long term, period. If a club member plans to remove his or her money in less than three years, he or she should not be investing in the club. This way, when club stocks go down, members are anxious to buy more stock instead of wanting out of the club.
  2. Analyzing stocks has never been more important. Be sure that your club does not choose to buy or sell a stock until a proper stock study worksheet is performed by one of the members. Many clubs started getting into the habit of chasing stocks upward on recommendations or news. You don't see that much anymore, and rightfully so.
  3. Members need to stand up for the club’s mission. If some members begin to challenge the creation or current purpose of the club -- blow the dust off your charter. Discuss the reasons why the club was initially formed. Somewhere in there is most likely the desire for the club to increase wealth over the long term. And over the long term, stocks have outperformed inflation and bonds.
  4. The club should be looking for buying opportunities. Fearful clubs put off buying until the market settles down. This is a serious mistake. Buying on the market’s dips is the key to successful long-term investing (hence dollar-cost averaging). If your club is scared to purchase new stocks, at least put some money into the companies you currently hold and believe strongly in.