Investment Clubs’ Membership Drops With Market Woes
If you’re not as excited about the stock market as you used to be, welcome to the club: Investment club membership rosters nationwide dropped again in 2000, suggesting the trend may have peaked.
Fueled by the bull market and widely touted club success stories, the number of clubs belonging to the National Assn. of Investors Corp. zoomed from 7,000 at the end of 1990 to 37,000 in 1998. But the tally dropped in 1999 for the first time in a decade, and it declined again in 2000, to less than 36,000 by year’s end.
“We’ve obviously been affected by the market turbulence,” said Jonathan Strong, membership director of the NAIC, a nonprofit group based in Madison Heights, Mich., that turns 50 this year. “We’re working feverishly to get things rolling again, adding new products and services.”
Strong said membership has been depressed by the market slump of 2000, the fall from grace of the Beardstown Ladies--a club that wrote best-selling books on beating the market, only to acknowledge in 1998 that it inadvertently inflated its returns--and competition from Web sites such as the Motley Fool that stress personal investment success.
The NAIC’s individual membership, which includes people who may not be in clubs but who use the group’s education services, has fallen more sharply, from a year-end peak of about 720,000 in 1998 to about 552,000 now.
Clubs still are being formed at a rate of about 250 a month, Strong said, but they are being outpaced by clubs that disband or simply choose to withdraw from the NAIC. At the peak of the club frenzy from 1996 through 1998, about 500 clubs were joining the NAIC each month.
Also, many clubs have shrunk in size, Strong said, as some members became upset by the roiling market--especially for the tech stocks that have been club favorites--and as others dropped out after finding the club concept simply wasn’t for them.
Though the first investment club was formed circa 1900, the practice--in which groups of friends or co-workers meet regularly to pool their ideas and investing dollars--took off in the ‘90s, boosted by the Beardstown Ladies’ books spinning investment lessons in folksy terms. The anyone-can-do-it message was a hit on Main Street, but the group of Illinois seniors suffered a credibility blow when its math errors were exposed.
Not surprisingly, club membership tends to loosely follow the direction of the stock market. During the 1970s, for example, as stocks largely fell out of favor, the NAIC’s club roster shrank from about 14,000 to about 4,000.
But club activity doesn’t precisely mirror the market. In 1999, the NAIC’s club and individual rosters dropped even though all three major U.S. stock indexes gained more than 20%.
Among the clubs bucking the trend in 2000 was the Los Angeles-based Millennium Millionaires, which formed before the spring market peak. The club isn’t a member of the NAIC but uses some of the free materials at its Web site (https://www. better-investing.org).
“In theory it should be good that stocks are down because the prices are more attractive [to buy],” said Sharon K. Brown, a 30-year-old lawyer and one of the club’s 14 members. “But it’s discouraging to club members to see losses in the portfolio. We’ve been concerned, but we’re committed to sticking with this for five years. We just need to diversify away from technology a bit more.”
Still, the NAIC’s Los Angeles chapter has noticed the general drop in interest, said Chairman Edwin Williams. Though local NAIC classes still fill, attendance at the chapter’s annual investor fair declined to 600 last fall from 900 in 1998, and individual membership has fallen to about 10,800 from a peak of 13,000.
“Ironically, with this type of volatile market, it’s probably more important for people to be in a club,” he said. “But since we’re all volunteers, the good news for us is that at least there’s less work to do.”
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Has the Club Craze Peaked?
The number of investment clubs has ebbed in the last two years after soaring in the early and mid-1990s, according to the National Assn. of Investors Corp., a nonprofit group that helps clubs get started.
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No. of NAIC member clubs at the end of each year
2000: 35,889
Source: National Assn. of Investors Corp.
