Topic: How To Invest

Learn stock trading: The pros and cons of joining an investment club

We see investment clubs as a good way to learn stock trading, and gather investment information.

Investment clubs can offer social and educational benefits. For example, they may be a good place to learn stock trading if you are a beginning investor and think you would feel more comfortable learning about investments with others. Some clubs let you invest as little as, say, $50 a month.

Investment clubs do have hidden risks that can hurt your profits. That’s because investment clubs make decisions by committee, where responsibility for mistakes is diffused. When committees make mistakes, they sometimes make big ones.

In addition, investment clubs can produce unexpected personality clashes and unfortunate peer pressures. As well, decisions formed by a group consensus sometimes take on an air of legitimacy and urgency that can cost members a great deal of money.

Learn stock trading: How investment clubs can distract you from pursuing a sensible, conservative investing strategy

Let’s say, for example, you join an investment club that picks up on one or several investment themes or fads. You could feel pressure to do the same in your personal investing. (The risk with theme investing is that you could let the theme or fad become your overriding investment consideration, and distract you from other measures of value and risk).


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Or your investment club could invest in ways we don’t recommend, like using a sector rotation approach (where you underweight or overweight your holdings in certain sectors based on a forecast of the stage of the economic cycle, or other factors) or relying too heavily on technical analysis.

Our advice? Look for investment club that follows a conservative investing strategy like ours

The best way to learn stock trading in an investment club with less risk is to join a group whose philosophy has something in common with our three-part TSINetwork investing strategy: invest mainly in well-established, dividend-paying companies, spread your money out across the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; and Utilities); and avoid or downplay stocks in the broker/media limelight.

This approach helps you avoid overloading yourself with stocks that are about to slump because of industry conditions or changes in investor fashion. You also increase your chances of stumbling upon a market superstar — a stock that does two to three (or more) times better than the market average.

In addition, if you do join or form an investment club, make sure that in the initial planning the group carefully creates and follows a partnership agreement and organizational by-laws.

If you’re looking for safety-conscious investment advice like this, you should subscribe to our Canadian Wealth Advisor newsletter. Click here to learn how you can get one month free when you subscribe today.

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