Club Hopping

October 15, 2011

Club Hopping

Investment clubs are fun, but going all in can gut finances

By Kristen D’Andrea

Long Island Business News, October 14-20, 2011

Volume 58, Number 45

The Ladies Business and Professional Women’s Investment Club became a sensation 20 years ago when the media discovered the group of middle-aged women in the small Illinois town of Beardstown were continually picking stocks that paid off handsomely. On closer look, it was found that although the Ladies did make money in the market, it wasn’t in the spectacular range they first revealed.

No matter: The craze for investment clubs was off to the races.

The Ladies weren’t the first to huddle together to score in the market. Some Long Island players were there – if under more quiet circumstances – before them. In 1989 Jerry Goldberg, partner at Shalik Morris & Co. in Westbury, and six of his friends from Nassau County formed their own group, known as the South Shore Investors Club. Composed of doctors, accountants, salesmen and investment bankers, the club met monthly at members’ homes.

“We had fun,” Goldberg said. “We talked about investments for a while, then played cards and maybe ate some cake.” While Goldberg said he had dabbled in purchasing stocks and mutual funds, several members had never bought a stock prior to joining the club.

But in any investment – individually or as part of a herd – attention must always be paid to the national economic situation before players start to handicap stocks.

“From 1995 to 2000, I think you could have thrown darts at a board to determine which stocks to pick and still made money,” Goldberg said. “If we started the club a few years ago, I don’t know how happy we would be.”

After forming a partnership agreement and establishing a tax ID number, Goldberg’s group assigned each other positions and began slowly building a war chest with a required $50 monthly contribution from every member. By September 2000, members had each contributed $6,575 to the club at a fair market value of $33,000 each; the club’s total value peaked at $231,000.

The seven original members researched various stocks and voted on purchases, using a majority rule. Around 2001, interest began to dwindle and the club disbanded, Goldberg said. Overall, participating was a positive experience, he said, noting again the performance of the stock market in the late 1990s had a lot to do with his satisfaction.

Roberto Viceconte, a CPA, attorney and certified financial planner at WeiserMazars in Lake Success, agreed. “When everything’s going up, it’s easy, fun and everybody’s making money. It gives you a little bit of the gambling bug, like getting together to play cards or Bingo. But, when the market tanks, it can take a lot of fun out of it.”

There’s no debate about strength in numbers. Members of the more than 37,000 investment clubs belonging to the National Association of Investors Corp. can attest to the buying muscle they enjoy through their participation in a club. But very debatable is how much of their individual portfolio members should be investing through clubs.

Viceconte, too, was a member of an investment club with several friends a few years ago. “It was fun, in the sense of a hobby, but I would never do something like that with serious money,” he said, noting if a client’s participation in an investment club represented significant assets in his or her portfolio, it should set off alarms.

Investment clubs are, however, a great educational tool, Viceconte said. Take Tiger 21, an investment club founded in 1999 for high net-worth individuals looking to access the collective intelligence of a group comprising entrepreneurs, former partners of Wall Street investment firms and top executives at Fortune 100 companies. Headquartered in New York City, the club’s 185 members, who collectively manage approximately $15 billion in assets, pay $30,000 in annual dues for the privilege of membership.

While the majority of players aren’t in the financial league to join Tiger 21, there are investment clubs providing good information, access and advice on finding safe investments. Ian Weinberg, CEO of Family Wealth and Pension Management in Woodbury, said one of the greatest benefits of belonging to an investment club is gaining objective information and sound advice.

Prospective members of a club should first acquire a membership roster, find out how long club members have been working together and determine how they gather their information, he said. “What’s the club’s process for buying and, more importantly, selling? If the club has no sell process, that’s a big red flag.”

Making sure the club’s collective objective is in line with an individual’s personal interests is essential. Weinberg said he would be in favor of a club that provided its members with information regarding what to stay away from, but would be leery of a club that was running with the herd, simply buying hot stocks, such as Apple or Google, or purchasing a stock because it split.

“If there’s a club out there talking about what not to do first – I think that’s a really good start,” Weinberg said.