Clubs offer fun way to invest

By Bina Brown
For CNN

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(CNN) -- There is nothing quite like a legend to keep a dream alive. For the thousands of people who have banded together to form investment clubs the story of the famous Beardstown Ladies Club, named after their hometown in Illinois, is often recalled.

With no previous knowledge of the stock market a group of ladies set about learning how to invest. It was decided that each member would contribute $US25 to their investment fund.

What gave these women the headlines was the average return from their portfolio of 23 percent over 10 years, better than twice the performance of the Standard & Poor's 500 index over the same period -- a measure of 500 of America's top companies' share performances.

The Beardstown Ladies started with a simple philosophy: they wanted to learn, they wanted to have fun and, of course, they wanted to make some money.

Investment clubs are popular around the world, and have a history dating back to the late 19th century.

The earliest club on record started in Texas in 1898. The National Association of Investment Clubs of America (NAIC) was formed in 1951 and has nearly one million members in more than 60,000 clubs.

In Australia there are an estimated 14,000 clubs. In Britain, a joint venture between the City of London, Treasury and top listed companies in the 1990s was so successful at launching Proshare to promote share investment to ordinary people that it has sparked about 12,000 clubs, with an average of 10 people each.

Proshare has since sold off the investment club aspect to an independent information vendor, which is providing information on how to set up and run investment clubs.

While every club will have its own set of rules, including how much should be invested and in what companies, a common aim of investment clubs is to help members learn from each other.

Clubs generally pool not just funds, but also knowledge, information and experience.

Risks and costs are shared, and the pooling of funds means gives the added benefit of being able to invest in a range of shares with a relatively small outlay required from each member.

While women aren't the only ones forming investment clubs they tend to be a dominant force.

According to some research by the Australian Stock Exchange into investment clubs and share ownership women are not as afraid as men are to band together and ask questions.

" Investments will rise and fall in value and a certain amount of good-natured 'I told you so' is part of being in a successful club." - Lyn Armstrong, Australian Stock Exchange

"We know from our share ownership surveys that women are more likely to solve problems jointly,'" says the ASX's Lyn Armstrong. "I also think women are a lot more likely to say 'I don't know'."

In Australia, men make up 54 percent of shareholders, with most investors (58 percent) over 44.

"Generally speaking, women tend to have less investments than men and are less interested in the market, but they like the combined social aspect with learning about shares," Armstrong says.

The biggest risk people see with clubs is the possibility of one member running off with the money -- even though there are ways to prevent it happening.

Armstrong believes clubs should be governed by a partnership or unit trust structure and that club members should have two signatories for the withdrawal of any funds.

"Generally speaking, it is about putting $20 a week into an account," she says.

"It's a small amount of money and you are sharing the risk. It is supposed to be light-hearted.

"Investments will rise and fall in value and a certain amount of good-natured 'I told you so' is part of being in a successful club.'"

Most clubs operate with rules on how to join or get out of the club, how much money will be invested each month and how decisions are made.

It is not unusual to find an element of fun.

Take the DEEEL Investments Club, where 14 women meet once a month at a different restaurant to discuss the stock market.

Armed with their own research findings about possible investment options, the objectives of the club are in its name: drink, eat, earn, enjoy and learn.

They could easily have added education to the name.

There was much relief among members when the first shares bought by DEEEL Investments gained 8.2 percent in value.

Each member puts in $50 a month. Every time they get $2000-$3000 together they plan to buy another package of shares with the aim of building a portfolio of 10-12 stocks over time.

Every decision on what to buy and sell is a group decision, with one vote per member.

Importantly, there is no blame if a share bombs.

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