When the Millennium Millionaires Investment Club of Los Angeles began in March 2000, they knew that their days were numbered. The 14-member club, mostly made up of inexperienced investors, agreed to disband in five years, largely because they didn’t know how they would react to the investment club experience.
“We decided on five years because some people didn’t know exactly how long they wanted to do it,” explains Andrea Woods, 37, the group’s first president and the driving force behind the club’s creation. “I recommended five years to minimize cash-flow interruptions for members, and earnings interruptions for the club.” Establishing the club as a partnership allows the flexibility to break up easily if members get disinterested, or keep things intact if members want the club to endure over the long haul. When the five-year point approaches, they’ll hold a vote to disband or continue the partnership.
Woods, who is a finance manager at Fox Broadcasting in Century City, California, explains that committing to the five years gave some members an increased comfort to investing because they knew when they’d get their money back. She also points out that the established time limit lets the club know in advance how much money is coming in, “which gives you a certain amount of buying power [to purchase stocks].”
To discourage people from leaving, the group is protected by its bylaws’ vesting schedule, which requires members who exit prior to the five years to leave a portion of their full share of club holdings behind. The vesting schedule gives members 25% of their share for 0315 months in the club, 50% for 16330 months, 75% for 31345 months, 90% for 46355 months, and 100% after 56 months.
Kenneth Janke, president and CEO of the National Association of Investors Corp. (NAIC) in Madison Heights, Michigan, says that very few clubs actually set time limits like Millennium. He suggests clubs adopt partnership agreements similar to those posted on the NAIC website (www.better-investing.org), which run year-to-year and are renewable. “I like their idea of vesting to keep people in over the long term,” says Janke, “but we don’t think you should have time limits at all. Five years from now, we could be in a deep recession, and it could be the absolute worst time to liquidate the club.”
Woods had been the corresponding secretary of another investment club before starting Millennium Millionaires with help from two other friends, who are attorneys. Using an old partnership agreement and bylaws from her previous investment club as a template, Woods worked with her friends to draft the current partnership agreement and bylaws.
As of January 31, the club held $15,000 in stocks, and $3,200 in cash in its account with T.D. Waterhouse. Woods says that in its first year, they lost between 30% and 40% of their investments, but now they are down about 20% since inception. The group has 15 stocks in its portfolio, including Krispy Kreme (NYSE: KKD), which has garnered a 121% gain for them, Pacific Gas & Electric (NYSE: