One of the astonishing developments in stock ownership in the past 10 years has been the wildfire spread of invest­ment clubs throughout the nation. A New York Stock Ex­change survey indicates that there are at least 20,000 clubs in existence, with a total membership of more than 277,000 people—and that more are forming, at a phenomenal rate, every day. The market value of the clubs' holdings tops $160 million and they are pouring $2 million of new invest­ment into the market each month.

All this is the more remarkable when it is considered that most clubs are less than three years old, and that nine out of ten have a portfolio valued at less than $10,000.

No concerted organizational or promotional effort has created these clubs. They have sprung up spontaneously as the realization has spread that here is a device enabling people of modest means to educate themselves about in­vestment and to acquire stock in an orderly, consistent, and intelligent manner.

In outline, a club's members meet regularly, contribute funds equally, study investment possibilities carefully, and agree jointly on shares to be purchased or sold. The unique features of this procedure are, first, that by responsible group   effort  the  members  can  learn  the   complexities   of
investment and, second, that by aggregating funds they can acquire stock with individual contributions even smaller than the Monthly Investment Plan minimum.

Most clubs are composed of neighborhood friends or busi­ness associates. Sometimes they are employees of the same firm, sometimes members of a fraternal or religious group. The majority of clubs have all-male memberships, although some 3,800 include women, and something over 2,000 are ex­clusively for the ladies. A group of policemen form the New York's Finest Investment Club. A group of Maine business­men, who have been long-time hunting companions, are now stalking profits as the Katahdin Investors Club. Some avid bridge players have become the Bridge Investors Club; the Johns-Manville Club is made up of J-M employees. Essentially, these alignments assure a pleasant social atmosphere and economic compatibility, so that everyone can contribute equally to the club's program without strain.

The average club membership is 15, a few number 20. Many clubs start with six or eight, and grow as interest is aroused. Experience indicates that 12 to 15 members are best able to conduct the business of the club. Beyond that number, things get somewhat bulky and unmanageable.

It can be extremely helpful to have a lawyer, accountant, and/or banker among the members. This is not always pos­sible, and many clubs are operating successfully without them, but if they are not members, they should be within hailing distance to give professional advice on legal and tax matters, where necessary.

Clubs should also establish an account with a brokerage and get to know the customer's representative who is handling it. He can be a source of much useful information on the new and unfamiliar field the club is entering. Many brokerage houses are happy to have representatives attend occasional club meetings to explain brokerage and market operations, security analysis, and economic trends.

With membership established, the club's next step is to agree on objectives and procedures: How often shall it meet? How much shall each member contribute? How should stocks be selected? What should be done with dividends?

Clubs ordinarily meet once a month. Meeting less fre­quently than that slows activity to an unsatisfactory pace, more frequently places a greater demand on the members' time than the funds involved warrant.

The usual investment is $10 per person per month, al­though this depends entirely on the group's level of income. Some clubs set the ante as high as $100 per month. Less than $10, of course, does not give the club much capital to work with, and will probably make progress seem discouragingly slow. More than $40 makes it possible for a member to set up an individual MIP, and at $100 an investor could deal directly with a broker from time to time. In these latter instances, however, diversification would be harder to achieve and, of course, the burden of stock selection would be on the individual rather than decided by the shared wisdom of the group. It appears that most individuals find the club experience a good training ground in investment and that, after they learn their way around, some 40 per cent of them feel well enough oriented to open personal accounts.

Investments of $10 to $20 a month for groups of 10 to 15 people mean a fund of from $100 to $300, not an over­whelming amount, but enough to buy 10-share blocks at 30 or 5-share units at 60. The average club investment is about $260 a month.

Whatever the amount, most clubs feel that it is absolutely essential that all members invest equally. If individuals are allowed to have two or more memberships, or to invest twice or three times as much as the others, it will also be neces­sary to give them two or three votes in club affairs, thus un­balancing the share-and-share-alike mutuality which is basic to successful operation of this kind of organization. Twice as much money is not automatically a guarantee of twice as much good sense when the votes on investment are cast.

In selecting stocks for investment, procedures are as various as the ingenuity of the club permits. Some clubs start by ac­cumulating shares of the company the members work for, or a company active in the area whose personnel and operations are known to the club. Other clubs undertake a study of a different industry each month and then, perhaps, appoint a committee of several members to report on companies within the industry. Some clubs arrange visits to company head­quarters, or branches, in their vicinity. They inspect oil fields, mines, mills, and manufacturing facilities. All of this, of course, is rudimentary, but it is the beginning of under­standing and evaluation.

For the rest, it depends on the club's objectives. Like you, it must decide whether to try for growth, dividends, or stability, whether it is in for a quick profit or for long-term ap­preciation.

Here is where the banker, the accountant, and any other specialist the club is fortunate enough to have among its members can assist in interpreting earnings trends, price-earnings ratios, and capital structure. The club's broker can help here, too.

Once the facts are before it, the club can vote whether to invest or to look further.

Voting rules are, again, a matter of group decision. A simple majority may prevail, or a club may feel that invest­ment decisions are of sufficient gravity to require something closer to unanimity, perhaps a two-thirds or three-quarters majority. A club with an even number of members will certainly have to define "simple majority" for itself. The club will also have to decide whether a majority of the members present can act for the group as a whole. Some clubs provide for voting by proxy; a member who knows he cannot attend may designate another member to vote for him. This assures voting by the whole membership, but in operation a number of clubs have found it unsatisfactory and have barred the proxy. These clubs feel that it places too much weight on the proxy holder's judgment, and that the convenience of the proxy encourages members to be lazy about attendance.

If the vote on a stock is favorable, the broker is informed, and places the order. Usually, too, he holds the certificates in the club's name and provides a monthly statement of account.

The same procedure is followed when the club decides to sell a holding and realize cash for reinvestment.

As a general policy—because the objective usually is long-term appreciation—dividends are reinvested, rather than dis­tributed.

How well can a club expect to do? As a rule, clubs falter a bit at the start and then improve as the members gain in savvy and sophistication. Clubs have been lured into specu­lative ventures in the hopes of big, quick profits, and found to their chagrin that they were stuck with lemons. This is a painful way to learn, but one or two such mistakes can be surmounted if the club is willing to analyze where it went wrong, and study harder to make a sound choice next time.

One of the real success stories that illustrate the potential of a smartly run club is the experience of the Allied In­vestment Group of Williston, North Dakota. Its 15 members organized in the fall of 1957, and by the end of their first investment year had realized a paper profit of 21 per cent. This is a fairly high-powered group; it includes a number of executives who are no strangers to business decisions, and it is comfortable enough to afford a monthly investment of $100 per man. Still and all, it proceeded modestly and cautiously until it got the feel of investment problems. Its first purchase was Amerada Petroleum—15 shares—because the company was prominent in the area and the club liked what it knew of the way company affairs were run. Since then, the club has bought pieces of such well-known com­panies as General Dynamics, Monsanto Chemical, Fidelity-Phenix (insurance), Owens-Illinois Glass, Sharon Steel, and Safeway Stores. The total market value of its portfolio in October, 1958, was $21,578. The total cost of 523 shares of 16 companies was $17,832. A profit of some $3,700.

Other clubs have done even more spectacularly. Perhaps the star performer of them all has been the Mutual Invest­ment Club of Detroit, which, after 16 years, held a portfolio worth $85,000. It had invested $26,000 in members' funds and another $34,481 in dividends and capital gains—and had acquired not only its large portfolio, but some $22,000 in additional earnings it had distributed to the members! This is hardly a typical club or a typical result. But it should be noted that the membership was not composed solely of financial wizards at the outset. For the first two years the club was in the red, and at the end of the third its profit was only $200.

Portfolio of the Allied Investment Group, Williston, North Dakota

Stock & No. Shares	Date Bought	Price Paid A Share	Total Cost	Market Price On 10-15-58	Total Mkt. Val. 10-15-58
15 Amerada Petroleum	11-1-57	$98.50	$1,477.50	$109.00	$1,635.00
100 Nat'l Fidelity	11-22-57	11.50	1,150.00	16.00	1,600.00
20 General Dynamics	12-27-57	58.62	1,172.50	57.50	1,150.00
20  Texas Instruments	12-27-57	25.50	510.00	51.87	1,037.50
25  Monsanto Chemical	1-31-58	34.62	865.62	37.00	925.00
25 Victor Chemical	1-31-58	27.75	693.75	30.50	762.50
24  Owens-Illinois	2-28-58	65.25	1,566.00	76.25	1,830.00
20 Texas Instruments	3-28-58	30.25	605.00	51.87	1,037.50
30 Ark.-La. Gas	3-28-58	29.25	877.50	36.62	1,098.75
10 Ark.-La. Gas	4-25-58	32.12	321.25	36.62	366.25
40 Raytheon Mfg.	4-25-58	26.37	1,055.00	47.37	1,895.00
30 Safeway Stores	6-3-58	30.25	907.25	33.25	997.50
10 Bohack	6-3-58	36.50	365.00	36.62	366.25
20 Raytheon Mfg	6-27-58	33.62	672.50	47.37	947.50
30 Montgomery Ward	6-27-58	37.62	1,128.75	39.25	1,177.50
14 Merck & Co.	8-4-58	60.12	841.75	68.75	962.50
12 Fidelity-Phenix	8-4-58	55.25	663.00	53.25	639.00
45 Sharon Steel	8-29-58	32.50	1,462.50	36.75	1,653.75
33  Great Northern	9-26-58	45.37	1,497.37	45.37	1,497.37
Totals			$17,832.14		$21,578.87

The point is that the members of Mutual learned their lessons well. And this opportunity is equally available to anyone interested in forming, or joining, an investment club. Primary emphasis on the mechanics of the business will in due time lead to sound decisions and reasonable profit.

Tips for Club Members

If the investment club strikes you as an ideal answer to your needs and requirements, there are some additional points to consider.

Do not attempt to form a club until you have investigated its status under Federal, state, and local laws. The Associa­tion of Stock Exchange Firms is attempting to win passage for a model statute that will simplify and clarify the status of investment clubs—and in some states is has already been enacted. In most states, however, a variety of laws govern the formation and operation of a club and its status as a partnership, corporation, joint venture, or whatever. The difficulties are rarely insurmountable, but complications can be avoided if your club will check with an attorney before becoming involved financially.

Along the same lines, your club can avoid awkward mis­understandings if the ground rules are clearly established from the start. Provisions should be made for the death or de­parture of a member. Each investor should be able to with­draw his share of the club's assets at any time.

The position of newcomers or replacements for members who have dropped out or moved away should be defined. Does the new member participate on an equal basis in the accumulated assets of the club upon payment of his first $10? Or should he be expected to match the total investment of his predecessor?

Run your meetings briskly. Expect to give the business at hand your full and earnest attention for two hours; invest­ment is too serious to be brushed over in less. On the other hand, be organized. Don't let meetings drag on or founder in confusion. Members will start resigning out of boredom.

Insist that your investigation committees do their home­work. And that they stay on the point. These are elements of good reporting in any field, and are not hard to learn. Clarity and precision will not only make reports more in­teresting, but help you to make your decisions confidently.

Absenteeism plagues almost every organization, and you will have to find your own way to lick it. As noted, the proxy at least assures a vote by the whole membership, but it has its disadvantages. The Williston club has instituted an automatic $5 fine for missing a meeting, regardless of the excuse. Some clubs interpret a certain number of absences as evidence of disinterest and as grounds for dismissal.

As for the club's performance as an investment group, it will, at first, leave something to be desired. There is some­thing heady about the manipulation of money and the chal­lenge of out-guessing the market. You will find, as you start out, that it is easy to be overly enthusiastic about one stock or another, or, because your fund is relatively small, to concentrate on low-priced issues. The enthusiasm may be warranted, and your low-priced issue may be solid, but try not to let judgment be colored by passion, and never choose price over quality.

Make your committee reports as realistic as possible. In the first flush of enthusiasm, it is possible to be swayed by the mass of beautifully printed material available about this company or that. Set up your standards in advance: know what you are looking for in terms of price and dividend trend, in terms of products, in terms of capital structure and management.

Note: Changes in corporate management are not automat­ically good. Very often a new slate of officers, or some re­tirements, will bring in fresh blood, but there is no way of knowing immediately whether the new men are as capable as the ones they replaced.

There is nothing wrong with over-the-counter stocks as such. But many clubs have found that the fluidity of the market on the big exchanges, and the certainty of daily reporting of stock prices, makes investment in Big Board issues considerably more satisfactory.

It is easy to decide that you've got a natural bent for investment if your first purchase begins behaving nicely. Don't be fooled. A great many stocks have been behaving nicely for some years now. In many ways it's difficult to pick one that doesn't. Enjoy your success, but keep studying and keep learning.

Fight the tendency to make too many switches in your portfolio, particularly in the early stages. Remember that the commissions on getting in and out are going to eat into your gains. Furthermore, impatience is likely to boost you out of a stock before it has a chance to show its worth. Re­member, too, that from the tax angle, you'll be paying on gains as straight income unless you've held the stocks for six months or more.

Finally, stay friendly. Money can get people quite ex­cited. Money can come between friends. You'll have a better chance of success if your members are friendly on grounds other than investment, if everyone understands clearly that there are hazards as well as profits, and if everyone does his best to become knowledgeable in the field as soon as is reasonably possible. It is the mistakes of ignorance that cause trouble. Many clubs have had some hot times because a member couldn't understand why the group sold short of the top or why, with the good old Northern & Southern Railway running right through town, everyone insisted on buying Gulf Oil.

Stay in close touch with your broker. He can help spell out some of the fundamental ABC's until you can paddle on your own. He also should have, or be able to get, informa­tion bearing on the problems and experience of other in­vestment clubs, which can aid you in steering around pitfalls. More than 1,500 clubs are linked in the National As­sociation of Investment Clubs, 2224 National Bank Build­ing, Detroit 26, Michigan. You might do well to get in touch with this organization.

Otherwise, every piece of information and advice in this book applies as rigorously to investment clubs as to invest­ing individuals.