BI > JULY 2002

Clubs in Cyberspace

It's Easier To Talk Than To Write

The Family and Friends Investment Club has no meeting place and no regular meeting time. While the partners may see one another from time to time, they don't all get together in person regularly. What kind of investment club is this?

"A small group of family and friends wanted to jointly buy stock and to try to do everything online, so we decided to form an investment club," says Jerry Staub, an NAIC member in Tonawanda, N.Y. The club partners communicate using e-mail list servers and a Web site.

While there are no detailed statistics on the number of online clubs that are NAIC members, more clubs are using the Inter-net to enhance their traditional face-to-face meeting structure or as an operating forum. Many resour-ces on the Web enable club partners to communicate and share information. These include Web sites, e-mail list servers and chat rooms.

Online clubs have many of the rewards and challenges of traditional clubs. They can also encounter problems unique to operating in cyberspace.

Since 1991 The oldest known online club is the Pioneer Online Investment Club, which began on the CompuServe online service in 1991. The club now has 12 partners and a portfolio valued at about $80,000.

Later in the same year, the Windy City Investment Club was founded on the Prodigy online service. It later moved to the Genie online service. Membership in those early clubs was limited to the small percentage of people who had access to the Internet and who had the same online service provider. Online access was also quite expensive. Most clubs operated by using message boards and online libraries.

Mark Danner joined the Windy City Investment Club in 1994 after learning about it in a public investment forum on Genie. "WCIC was started with the intention of following NAIC investment principles for fun, profit and education," says Danner, an NAIC member in Oklahoma City, Okla.

Danner began reading the club's messages on Genie and was introduced to the NAIC method of investing. "Investment clubs were totally foreign to me at the time," he says, "and I asked so many questions that the club president invited me to join." WCIC currently has 22 partners from around the United States and a portfolio valued at more than $350,000.

Nuts and Bolts

Since partners in online clubs can live thousands of miles away from one an-other, operating such clubs can be challenging. Financial issues such as collecting dues, distributing valuation statements and doing the club accounting are handled differently from club to club.

The Cross Country Investment Club has had to implement procedures regarding partners living overseas, says Jeffrey Richer, a founding partner of the club. "All of our money is in U.S. dollars, and our two European partners have checking accounts in the U.S.," he says. All partners must mail their dues checks in by the first of the month to the treasurer, and all statements are posted online with NAIC Online Club Accounting.

Some clubs have no formal meetings, preferring to use e-mail lists to keep in regular communication at a time that suits each individual partner. Other clubs set a regular date and time to meet at an online venue such as a chat room.

The Millennium Investors Investment Club uses e-mail to communicate. "During the first two weeks of every month, members can submit companies for discussion," says founding partner Michael Walter. "We discuss them during the last two weeks of the month. We vote up to the last day of the month, and on that day I go online to our broker to make the purchase (that won the vote)."

The Cross Country Investment Club uses both e-mail and chat rooms to communicate. "We have a private list server set up, and we all can post messages and respond to it at will," Richer says. "Because of time zone differences, sometimes a response from all of us takes time. We try to have a scheduled chat every two months or so, on a weekend. That might be for up to two hours."

Bigger Time Commitment

Partners in online clubs believe that they face challenges unique to online clubs and others that are common to all clubs.

"No physical presence means no body language, and this can potentially lead to the same sorts of issues that people find in e-mail such as flaming and misinterpretation of comments," says Brian Lewis, a partner in the Coast to Coast Online Investment Club.

Richer still finds it extremely difficult to talk in cyberspace. "I can say what I have to say in five minutes (when speaking)," he says, "but it might take me an hour to communicate that online. There is a much larger time commitment to having a successful online club as opposed to a face-to-face club." There can also be problems with sending and receiving documents and NAIC Stock Selection Guides.

Online clubs must have reliable technology, Lewis says, including Web sites with sufficient storage space, e-mail list servers and chat rooms that log discussions. "This area hasn't been a problem for the club," he says, "although recently we have had some problems with some partners not being able to connect for meetings or being kicked off (during them)."

Partner interest and participation has been an issue for the Cross Country Investment Club, just as it is for many traditional face-to-face clubs. After a number of years as president, Richer felt burned out and saw several partners quit. "However, the past year has been a good one," he says. "We are a lot more cohesive and much more effective and productive. We have definitely grown up."

Pooling Ideas, Not Cash

The Web Savvy Investors Club held its first meeting in December 2001 as a club with no pooled assets. This means that while members study stocks together, they don't contribute money to a joint club account.

"Since the creation of the online club was primarily for the exchange of ideas, we did not feel it was necessary to contribute real dollars, although we do have a virtual portfolio," says John Parmley, founding partner. Operating without cash means that the club devotes less time to accounting issues and more time to studying stocks and portfolio management.

The club has a Web site and uses other services for message boards, file storage and online chats. Parmley believes the online structure of the club is viable.

"One thing I've learned from participating in both online and land-based clubs is that the problems of active participation are not dependent on the type of club you have," Parmley says. "Rather, they are based on setting high expectations about participation early in the process."

A similar club is NAIC's Challenge Club, which currently meets the first Monday of the month at 10 p.m. EST in a chat room at NAIC's Compu-Serve Forum. The club is open to anyone and maintains a virtual portfolio available for viewing at the NAIC Web Site.

The Challenge Club has been in operation for nearly five years and is run by Mark Robertson, NAIC's online resources director. Through the Challenge Club, members share stock studies, build a virtual portfolio and practice NAIC portfolio management techniques.

To see how some existing online clubs manage their affairs, visit the following Web sites:

• Coast to Coast Online Investment Club
• Cross Country Investment Club
• NAIC Challenge Club

Below is a list of resources for both online clubs and traditional face-to-face clubs that use the Internet to enhance their capabilities. This list includes some of the resources used by the online clubs mentioned in this article.

• Web sites: When looking for a club's online home, partners prefer sites with free message boards and file management capabilities. Suggestions include NAIC Online Club Accounting, or NOCA, Network54 and Geocities. Geocities requires elementary knowledge of HTML coding. NOCA recently began offering message boards. In the past many NAIC clubs used Yahoo clubs. But recently Yahoo merged the clubs area into groups, and many clubs have experienced problems.
• SSG exchanges: Club partners can exchange SSGs via e-mail attachments. All partners must have SSG software or at least an SSG software reader. Some clubs with Adobe Acrobat software (available for a fee) prefer to create a PDF file out of the SSG for everyone to download.

NOCA recently introduced a feature to facilitate the exchange of documents such as SSGs.

• Real-time chat: Some clubs prefer to meet in real time using services that allow partners to type messages to one another. Many clubs look for technology that's free and widely available and offers a transcription capability. Suggested technologies include AOL Instant Messenger, mIRC and Network54.
• Club accounting: With more clubs doing their accounting online, either a Web site or a link to a club's online accounts is a valuable feature to offer club partners.

NOCA currently offers club accounting as well as a Web site, message boards and file storage capabilities. The values of club holdings are automatically updated, and partners can access a variety of reports on their club's portfolio. For a fee, clubs can use federal tax-filing forms online, and individual partners can download or print their own tax forms.

• Voting: A special area where club members can vote on stock purchases and other issues is a nice enhancement. Network54 offers a voting booth that can be linked to virtually any Web site.

Amy Buttell Crane, a free-lance writer based in Erie, Pa., writes about mutual funds for BetterInvesting Magazine Amy is the author of the second edition of BetterInvesting's Mutual Fund Handbook. She also has taught stock and fund investing classes.