Message Font: Serif | Sans-Serif
No. of Recommendations: 5
Hey, Tony, you might get a kick out of this one!

The other night I attended a non-credit class at the community college (delegated to go by two friends who did not want to sit through the class themselves but wanted to learn about the subject so that the three of us (?) can start one) on starting an investment club. (They delegated me because I hang out at the Fool, work in the financial industry, and have actually bought stocks of my own :).) Anyway, this class was two hours in length and purported to tell folks how they could actually form an investment club of their very own.

What we got was a handout, at the beginning of the class, with the brokerage house's name on it, that enumerated a list of "fallen angels" (stocks that the instructor's brokerage firm deemed to have lost enough of their value to have become "bargains" -- in fairness, these were big stocks like Campbell Soup, Gillette, Pepsi, and AT&T). The sheet was filled with 32 stocks, all but nine of which had little symbols next to their names that meant either:

1) the brokerage firm had managed or comanaged an offering of the company's securities within the last three years;

2) the brokerage firm makes a market in that security;


3) the individuals involved in the preparation of this report own shares.


Okay, on to phase two. He went over some very basic stuff, as in, you have to find a meeting place, are you going to have dinner at your meetings (?), will you meet at someone's house and have cake and coffee, you need to charge dues for your club to pay for the cake and coffee and oh, yes, the accountant you'll have to hire to prepare the 1099s for everyone in the club to account for capital gains at the end of the year. He also set the ideal size of an investment club at 8-15, told us that we should reckon membership contributions in shares rather than in dollars (but his explanation of shares left at least one member of the (small) class completely confused), and said we needed bylaws to figure out how and when people could cash out if they wanted to.

Phase three pretty much consisted of questions from the class, one member of whom was already in a club and gave more information about the nuts and bolts of what a club is like than the instructor did.

Phase four consisted of his reading over the second handout -- pages covered with the name of his brokerage firm that detailed all the things he had previously covered in class, but in greater detail; that gave a sample of bylaws; that gave a letter to the brokerage house authorizing it to buy stock on behalf of _______ investment club; and gave a reading list that the Fool puts to shame. He also pooh-poohed discount brokers, online research, and intimated that the only way you could do this safely was to have a full-service broker come and address your meetings, do your research, provide you with materials for your meetings, and buy your stocks.

Phase five was the utterly unbelievable video from the brokerage house purporting to show how an investment club works. If those people weren't reading from a script I would be shocked.

He ended the class with a request for us to fill out a convenient little form with our names, addresses, telephone numbers, ages, and which types of products we would like to be contacted about -- stocks, mutual funds, bonds, retirement (IRA, rollover), 401(k), estate planning, college savings, long term care insurance, CDs, annuities, small business loans, life insurance, mortgages, money market funds, and OTHER. (Can you say SALES PITCH?)

Now somehow this doesn't seem much like a class to me. It was a sales pitch, for which I was charged $15 and on which I wasted two hours of my evening. I have already written a letter to the college to ask for my money back and to tell them what the class was like.

Things he should have asked and didn't:

Do you know what your risk aversion is? Do you know how to find out your club members' risk aversion?

Do you know how to do research on a stock? Do you know where to go for information? Did you know you can get that information for free?

Do you understand what a discount broker is? Does anyone in your group have one, so that they could perhaps serve as the purchaser for club stock or at least educate the person you select?

Do you know what your objectives are? Do you know how to determine them?

Do you know what your interests in investing are? What stocks you want to concentrate on? What industries you're interested in?

Do you know how to research those industries?

Do you know how to work together?

Do you know whether you're a buy-and-hold investor or a trader? Do you know how to tell the difference? Do you know what both will do to your bottom line as a club and as an individual?

These were just a few of the questions I thought of after I came home from class. Not one of these questions was addressed.

There were terms on the worksheets he gave us like P/E multiple and leverage and liquidity and beta and PEG ratio. He did not attempt to explain any of them, although these are things we should know in order to research a stock. When asked, he also failed to explain P/E multiple satisfactorily (someone who knew what a P/E was actually asked him).

Any suggestions on any other issues I should address with the college (assuming I get a response)? I am horrified that this passes for adult education in this community. I have never attended a continuing ed class of this sort before and I think it's pretty sad when people can execute marketing strategies under the aegis of a college class for people who are looking for genuine help.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.