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Starting a Second Investment Club

A buddy and I came up with the idea of an investment club 10 or so years ago, but due to concerns with work I wasn’t able to get my first club up and running until January of 2013.  With 5 years under our belt running an investment club I can say that it is can be frustrating at times, but the rewards make it completely worth it.

At some point during our 5 years club, my younger brother, who is also a member of Investment Club 1, was talking to his friend about the club.  That particular friend loved the idea, but Investment Club 1 has been very hesitant to add anyone, and on top of that, the Net Asset Value (NAV) plus risk premium would be too high at this point for most people to just write a check to join.  So a few months ago they decided to start something on their own and subsequently invited me.

My Second Investment Club

It started with an email from my younger brother and his buddy to me about an investment club.  Truth be told I was a little hesitant.  I have a bias towards working with groups, so couple that with a need to keep some form of control and I end up doing the grunt work.  So my initial feelings were to say no.  However, then I was told their very specific investing mandate (discussed below) – I immediately signed up.

Since there was only 3 of us, instead of doing the right thing and setting up an Investment Club Limited Liability Company, I tried to create a joint account with 3 owners.  I failed, and then decided to bitch about Fidelity.  Since I quickly found out that for some reason in 2018 every online broker requires wet signatures to create a joint account with more than 2 owners, I just opted to do what I should have done in the first place and create the LLC.  With the LLC set up we then set up an account with E-Trade.

Investment Club 2’s Investment Strategy

It turns out that this 3rd party and now co-member, is really into dividend growth stocks as well! So we decided on two hard rules for stock purchases within this club:

  1. The company must have dividend growth of at least 5 years; and
  2. It must not have cut its dividend anytime in the past 10 years

This is very different than Investment Club 1, which has no clear investing mandate.  The fact that Investment Club 1 has no investment mandate is very okay with me, it just makes this a little different which got me intrigued.  Without the investing mandate I would have just been starting at zero with much less funds going into on a monthly basis.

Another difference is that we have opted to reinvest all dividends.  This has gone to vote a few times in Investment Club 1, and it is a battle I have lost each and every time.  Again, not a big deal, but it makes this fund a little different which is necessary for me to be excited about it.

Future of Investment Club 2

Similar to Investment Club 1, I do not know how or when this club will end.  I absolutely have reservations about the club, the main one being that we are not working with a lot of capital nor are we going to be able to build those reserves very quickly.  We each started with $1,000 and $100/mo going into the club.  This just isn’t a lot of money.  To accumulate cash reserves will take months and months especially since most, if not all, our purchases will be buy and hold.  I am hoping a once or twice a year larger deposit, but I can’t force the other members into that situation.  I do know that other than our first purchase (Disney) there will be very little share for a year or two.

Notwithstanding, I am very excited to be teamed up with these two members!



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