How to Form an Investment Club

With stock prices weak and the economy in the dumps, now is as good a time as any for would-be investors without much money to get their feet wet by forming an investment club.

Investment clubs group people who agree to pool money to learn about investing and try to make money in the stock market.

Together, the club members learn how to research and select stocks, and then buy them.

The clubs typically have 10 to 15 members and meet monthly, with people putting up modest amounts, usually $25 to $50 a month.

The secret that most investment clubs share is this: they don't try to time the market.

That means they avoid the popular trap of buying high and selling low.

Investment clubs tend to invest their money little by little, month in and month out, through good times and bad.

On average, that means they pay less for stocks than the typical individual investor.

And many members use their club experience as a springboard for their own individual investing, taking research techniques and stock tips home from their monthly meetings.

While having fun counts, it's important to run the club in a businesslike manner. When it comes to matters of money, people can lose their sense of humor fast if they sense other club members aren't serious about the investment pool.

Here are some guidelines about how to establish a club:

Contact the national association of investors association, for more information.

Cull people from all walks of life. The better clubs have diversified membership, where people from different occupations give insights into various industries.

Make sure your club is a legal, taxable entity. Most clubs form as partnerships; some incorporate.

Talk as much as possible upfront. A new group has much to hash out in terms of procedure and investment philosophy.

Figure out record-keeping and paperwork, and how meetings will be run. Decide on the group's investment objective, such as long-term growth, maximum risk for maximum return or growth and income.

Then determine criteria for stocks that will be bought - these can be financial indicators, like a minimum earnings growth rate, or social ones, like companies that are to be avoided for political reasons.

Be serious about research and educational objectives. Thomas O'Hara, chairman of the association, points out that the clubs that are least successful are usually those drawn to ''hot tips'' instead of hard work.

Keep an eye on the long term. Clubs that die usually do so during their first year or first bear market. If a club can get past those two markers, the outlook is bright.