Inflation, market gains have more people huddling into investment clubs
"We're a week behind schedule." That happy problem, says Thomas O'Hara, shows what can happen when people become interested in finance and investment.
Mr. O'Hara is executive director of the National Association of Investment Clubs, and in the last few weeks his organization has been registering a record number of new clubs around the United States.
"Normally we register up 20 to 25 [new clubs] a month," he said. "Between Dec. 20 and Jan. 19 we signed up 45."
In the first week in January, he added, the NAIC had over 1,800 inquiries.
As inflation has eroded the purchasing power of savings, Mr. O'Hara explained , people have become more interested in maintaining the buying power of their money. And the relative success of some stocks in recent years has helped bring investing to the attention of the many people who had never invested before.
Because of their inexperience, these new investors usually consult a stockbroker, hoping he will help them place their money profitably.
The NAIC is out to change this. The nonprofit trade organization was set up to teach people how to handle their own money in the stock market.
In addition, the association encourages the formation of investment clubs, in which people can pool their money -- which gives the clubs more capital to work with.
"But it's more than 10 to 20 people getting together for a good time," Mr O'Hara says. "Different clubs work different ways, but generally, they meet once a month to discuss what stocks to buy. Members contribute equal amounts -- an average of $25 each -- which is then invested by the broker of the club's choosing."
The are more than 3,800 clubs in the US, enrolling an estimated 70,000 people. And this number is growing.
The previous enrollment peak was 1970, a time when people had a fair amount of confidence in the moneymaking possibilities of the stock market Mr. O'Hara says that after 1970, during the market doldrums of the mid-'70s, membership declined. "People just weren't turning a profit -- and people will go anywhere there's a profit."
But recently the NAIC plan began to pick up interest as the stock market became more profitable. There are other reasons, including the desire to earn higher interest on savings than the savings banks may provide.
Also, Mr. O'Hara contends, "more people are becoming aware of the money that can be made by a wise stock market investor."
The NAIC (1515 East Eleven Mile Road, Royal Oak, Mich., 48067) is a cross between an educational organization and a trade association. It provides, aside from a stock selection guide and manual, a $25,000 fidelity bond to members for protection against possible fidelity losses -- or the possibility of one club member's making off with the other investors' money. It also takes part in legislative work and lobbying, "which can mean a better tax and operating climate for investors."
Most clubs have agents, or leaders. They are responsible for maintaining membership and handling accounts. They also contact the club's brokers to inform them of any investment decisions.
Each month club members are assigned various securities to study up on for the next meeting. This may seem a formidable task to those who don't know anything about the market to study.
So the NAIC supplies "The Investors Manual: The Handbook for Learn-By-Doing Investing." This handly 64-page booklet contains guides to stock selection and judgment, when to sell, portfolio management, investment terminology, and how to number ratio charts (which enable the investor to estimate stock growth rates).
A typical member, after being assigned a stock, will grab for his manual and follow the appropriate steps. This is part of the NAIC's plan to have members "learn and earn."
Mr. O'Hara explains that just because new securities are studied monthly, money is not necessarily reinvested that often. "There are two kinds of investors," he says; "traders, or short-term investors who really try to 'play the market,' and long-term investors -- which is what our clubs are."
The NAIC sets forth four principles for members to follow:
* Invest a set sum once a month regardless of market conditions. This helps members maintain lower average costs.
* Reinvest dividends and gains immediately. "This is compound interest at work."
* Buy growth stocks, or stocks in companies whose sales are increasing more quickly than those of the industry in general. These companies should be good prospects for continued growth, rather than wildcat fluctuations.
* Diversify investments to hedge against risk.
Members must pay dues -- each club giving $25 per year and $4.50 per member. Individual members who choose not to partic ipate in a club pay $16.50 annually.