If you had to guess, what would you say is one of the biggest reasons that one in four investment clubs disband within the first 18 months? Would it be because:
A. Members decided that it was too much work.
B. Their portfolio wasn’t performing to expectations.
C. Members had trouble meeting on a consistent basis.
What if I told you that, though all of the above reasons are valid, there’s also a more insidious reason why clubs split up? You’ve probably guessed it by now: personality conflicts. When club members have trouble seeing eye to eye – or one or two members dominate the group -- it can threaten a club’s existence.
Beginning investment clubs face a number of hurdles that they must clear, from forming a legal partnership to electing officers, setting up brokerage and bank accounts to yes, dealing with difficult members. One of the best ways to combat any problem is to have a plan in place ahead of time. That makes it much more likely that your club will clear any hurdles it faces along the way and enjoy long-term success. Here are some of the most common ailments new clubs face, followed by their remedies.
· Weakness in leadership.
Part of the club president’s role is to take aside any member who isn’t contributing to the club, whether that means the member isn’t paying his or her dues, attending meetings on a regular basis, or pulling his or her weight when it comes to stock study and education. Your club needs strong leadership in place that’s ready to encourage members to participate, and, in a worst-case scenario, ask a member to resign. (We never said the president’s job was an easy one.)
· A muddled meeting approach.
This is a problem with an easy solution. Most successful, long-term investment clubs follow a very specific agenda at each club meeting. (For a sample meeting agenda, go to: http://www.iclub.com/clubs/sample_minutes.asp.) Be sure to have an agenda ready for your very first club meeting, along with a copy for each member.
Some clubs even institute not just a designated start time – but also, a specific end time. If members know that club meetings start at precisely 7 p.m. and end at precisely 8:30 p.m., they are much more likely to keep the discussion on track. As a final note, it’s also up to the club’s leadership to keep the meeting on track. A simple, “Let’s keep the discussion focused,” can do the trick.
· Unequal membership participation.
Each and every member of your club should be an active participant, whether it’s taking meeting minutes, keeping the books, conducting stock research, or serving on the educational committee. It’s no surprise that long-term club survival rates dip considerably when one or two members are doing all of the work.
· Lack of a common philosophy.
If your club was founded on a philosophy of building a long-term portfolio of growth stocks that will be selected based on agreed-upon stock study methods, then this should be not only introduced at the club’s introductory meeting, but reinforced whenever a club member gets off track. Four words will really drive this point home: Beware the hot tip. Limit discussions to those that are based on solid research.
· Allowing one or two members to run the show.
As the saying goes, it takes all kinds of people to make the world go ‘round. While different personality types can lend unique strengths to a club, it can also lead to a club’s demise. Keep in mind that one of the biggest benefits to belonging to an investment club is the opportunity to combine the wisdom of many people to build a successful portfolio. It’s this premise that allows many investment clubs to outperform professional money managers.
Sometimes, less experienced investors feel they don’t “know enough” and may hesitate to disagree with their more experienced counterparts. And sometimes, the more experienced members take this as a license to run the show. Before you know it, lively debate and a sense of joint ownership in the club have faded. If this becomes the case, once again, it’s up to the club president to step in and bring the club back into balance.
Above all, refer to what ICLUBcentral founder Douglas Gerlach deems the Law of Reasonableness: People generally want to get along, and they want their club to thrive. Sometimes, however, people need a little reminder that reasonableness and cooperation take them further in the world than antagonism and aggressive behavior.
Do whatever you have to do. Add the Law of Reasonableness to the top of each meeting agenda or make it a standard part of your club’s basic materials. But don’t let small problems or personality conflicts stand in the way of what can be a long-term, enjoyable, educational – not to mention, profitable – venture.
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