Sun, Dec 29, 2002 - Page 10 News List

Investment-club membership declines

WIPEOUT The number of individuals participating in groups in the US that play stock markets have declined following a steady drop in share prices on Wall Street

NY TIMES NEWS SERVICE , BOSTON

Judi McDonald, president of the National Association of Investors Corp's Massachusetts chapter and a member of two investment clubs, looking over a newsletter from one of the clubs in Plymouth, Massachusetts, in November.

PHOTO: NY TIMES

Richard Perkins of East Sandwich likens the early days of the Wall Stock Investment Club to a poker group, where the members got together for some talk and some play and the hope of making some money.

"Back in 1998 and 1999 and even into 2000, it was pretty easy," he recalled. "But once things began to get difficult in the stock market, our meetings got a little contentious. We were losing money, and even though it wasn't going to send us to the poor house, the whole thing just wasn't so much fun any more."

The 10-member club lost three members prior to the start of this year; when three more wanted to leave, Wall Stock folded, cashing out members' shares in the club by the end of March.

But Wall Stock is far from alone. Indeed, just as investment clubs began popping up all over the country in the late 1990s, so too are they folding today.

Buoyed by the bull market and a popular book touting the financial success of a band of women from America's heartland, investment clubs sprouted like weeds in the mid-1990s. They were fun and, thanks to a booming stock market, successful. Today, they've been scarred by the claws of the bear market.

Losses are the story for clubs right now. Many got too concentrated in technology stocks, had their collective pocketbooks bashed in for it, and are now retrenching or changing direction in an effort to survive.

The number of clubs in the National Association of Investors Corp, the national group that most clubs join for support and guidance, peaked at 37,129 clubs in 1998. That number has shrunk by 22.6 percent, standing at 30,278 in August. There are 641 NAIC-member clubs surviving in Massachusetts, with an average of 8.5 members per club. Not all investment clubs decide to join NAIC.

The average club has also lost nearly one out of every three members it has; NAIC statistics show the typical club having more than 16 members in 1998, but just 11 members today.

"The stock market has weeded out the hobbyists, the people who joined an investment club so that they would have something to talk about at a cocktail party," said Judi McDonald, president of the NAIC's Massachusetts chapter and a member of two different clubs. She says her clubs -- like most that remain -- survive because members "came in hoping to learn. So while we're all disappointed, the people who have stayed have gotten what they expected from the sticking with it."

Investment clubs are small groups of investors who get together regularly to learn about and invest in the stock market. They meet monthly to quarterly and require members to contribute a set dollar amount at each meeting and to research stocks for the club's portfolio. Meetings combine investing with social interchange, making the groups like a sewing circle where stocks replace needlework.

The clubs function a bit like a mutual fund, issuing shares to members that represent a monetary stake in a club's investments. Those shares rise or fall in value based on the performance of the club's stock picks. NAIC data shows blue-chip and technology stocks were particularly popular with clubs as the market was peaking, which helps to explain why most clubs have had losses in recent years.

Preaching quality

Members of surviving clubs say their groups have been fundamentally changed by the stock market's decline. It's not just the stress of losses eating into the social aspects of the club. Some have had to evolve and change their investment philosophies so members felt comfortable remaining.

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