Secrets of Successful Investment Clubs

Following these strategies can help yours enjoy longevity

4.7% for the Vanguard Total Stock Market Fund. However, over the long term, they outperformed the fund. The 10-year average total return for clubs was 16.1%, compared with 9.5% for the Vanguard Fund.

As a member of a 66-year-old investment club in Detroit, Janke has witnessed the benefits of investing over the long run. When one of his club’s original members died in August 2005, after more than six decades of investing no more than $50 a month for a total of $13,800 out of pocket, the club paid his estate $1.6 million. “If that doesn’t exemplify the principles of regular investing for the long term, I don’t know what does,” Janke says.

Founded in 1997 as a general partnership, GRIG became a limited liability corporation at the end of 2000 to provide cash dividends to members every quarter. The L.L.C. status requires more extensive internal audits, so the organization’s streamlined operations structure makes business sense all the way around. GRIG now has 39 members across 10 states and Korea. New members make an initial contribution of $10,000, with another $10,000 due over a 15-month period, and they pay monthly dues of $175 each.

Tatem explains that splitting GRIG up into five operating business teams allowed the club to:
Maximize members’ skill sets and increase member participation by placing people with similar experience, interests, and passion on the same team.
Reduce investment risk by having teams conduct a higher level of due diligence.
Increase the return on investment (ROI) by selecting a key group of members to handle initial groundwork and negotiation on potential opportunities.

GRIG uses technology to communicate. “We post all information related to meetings, presentations, general information, and objectives on our Website,” says Tatem. “We have teleconferences to evaluate deals within the teams. The teams get final approval at the general meeting via online vote. We conduct online surveys to monitor how teams are meeting objectives and how the leadership within the group is performing.”

The new structure has proved successful; the organization’s asset value increased from $200,000 in 2002 to more than $1.3 million by 2005. However, growth hasn’t come without problems. Marck Dorvil, senior partner and a member of the Ventures team, says GRIG acquired a $20,000 equity stake in a copy center in Florida in late 2001, but lack of expertise on the part of copy center managers quickly forced GRIG to withdraw, losing about 60% of its investment.

After evaluating lessons from its first attempted deal, Dorvil says GRIG’s Ventures team proposed investing in a Carnett’s Car Wash, the largest full-service car wash and detailing franchise in Atlanta. The management team reviewed the deal, attorneys reviewed the contract, and financial analysts examined cash flow. GRIG paid $130,000, or 10%, of the cash requirement for the franchise and they borrowed the rest. The business, which sits on a two-acre site and is valued at $3 million, is one of Carnett’s 14 franchises in the Atlanta area.

Carnett of East/West Connector, opened in Oct. 2005. It grossed $186,000 in the first

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