Adding New Members to Your Investment Club
by Douglas Gerlach
New members can reinvigorate your investment club.

Once you've got your investment club up and running, it's inevitable that some of your founding members will end up withdrawing from the club. Members may move away, or change jobs and have a schedule conflict that prevents them from attending meetings, or they may lose interest altogether.

Should you replace departing members with new members? And what's the best way to bring new members on board in an existing club? We talked with Joe Craig, a founder and past-President of the Pioneer OnLine Investment Club, the world's first online investment club. He is also the President of the Computer Group of the National Association of Investors Corporation.

Meeting on CompuServe's NAIC Forum, the Pioneers have faced most of the same issues that confront more traditional clubs, including member attrition and initiating new members. "After our club started with some 23 members, we found that nearly half of them weren't committed to working," says Craig. "Over about a year or so, they mostly left the club, or were asked to resign."

If this attrition continues, a club may soon be left with just a handful of members. The Pioneers, like most clubs, found it inevitable that they would have to accept new members to their ranks. But given the online nature of the club, it was more difficult to evaluate potential candidates for members.

The Pioneers devised a fairly simple system of initiation that new members must follow. "For new members, we require an apprenticeship," explains Craig. "The potential member must formally ask to join the club, submit a resume so that we can all get to know him or her, and then participate in club discussions for a couple of months. Once the member has completed those steps, they must again request to be considered. Then, we'll vote (using a secret ballot) on their membership."

This procedure allows other club members the opportunity to get to know the prospective member, as well as giving the prospect a chance to "try out" club membership. Many candidates find that they're just not cut out for the club and quietly slip away into oblivion.

Craig says this initiation process is designed to work as a sort of "compatibility test" for both the club and the new member. "It gives us the chance to test a candidate's willingness to work and willingness to participate in a club that tries to follow NAIC principles. In our club, if they manage to stay with us for a couple of months, it appears that they'll be willing to continue."

What kind of members will the Pioneers accept in their club? The Pioneers aren't interested in only recruiting experienced investors to their club. In fact, they encourage investing neophytes to join. "New members with lots of questions are good for all of us," says Craig. "I'd much rather have someone ask lots of questions and help all of us learn than have someone who knows everything and behaves accordingly."

The Pioneers also don't require new members to kick in a large initial contribution. "Our club doesn't have a buy-in," explains Craig. "We use the unit value system of club accounting. That means that anyone can contribute any amount, even new members -- provided that it exceeds the minimum ($20 a month) and doesn't mean that they own more than 20 percent of the club's assets."

As far as paperwork goes, new Pioneer members sign a copy of the partnership agreement, which is sent to the club Secretary and kept on file. The members send their check to the club treasurer, and they become official members of the club.

So what about new members who don't work out, for one reason or another? "Most people who've found that they don't fit in the club take care of the problem themselves," asserts Craig.

Today, the Pioneers have 13 members, and a $85,000 portfolio of stocks. Yet only six of the current members are founding members of the club, and only one of the current officers is a founding member. The Pioneers have learned that new members bring plenty of benefits to their club.