The real reason investing clubs are drying up (and what we should do about it)


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Like radio stations that play the Flock of Seagulls and barbers who know — really know — how to cut the high fade, investing clubs are quickly disappearing.

But is that a bad thing?

According to a recent Reuters article, there are only about 5500 investment clubs in the U.S., down from 60,000 during the tech bubble.

“Oh, the numbers are definitely down,” says Adam Ritt, communications director for BetterInvesting, the Madison Heights, Michigan-based investors’ association whose members include clubs around the country. “It’s been a steady trend downward for a long time.”

The article hypothesizes about the reasons for the investment club’s demise, citing poor stock market returns, online investment research, and less money around to invest.

But these aren’t the real reasons investment clubs are disappearing.

The real reason investment clubs are scarce

Those may be valid reasons — fewer people are participating in the markets.  There is a bull market in financial content. And, well, people are feeling the big hurt of the economy.

Oh, plus the fact that investment clubs don’t perform particularly well.

But, there’s a bigger reason that investment clubs are going the way of the do-do: WE DON”T NEED THEM.

Why were clubs so useful?  They gave a framework to our investing, created accountability for shared research, made investing social, bubbled up ideas from multiple perspectives.

But today’s financial Internet — with sites like Seeking Alpha and StockTwits — IS inherently social.

The Tradestream is all about identifying investors with the right information and plugging into their research.  It’s about collaboration and sharing of ideas.  It’s about working together to validate — or disprove — an investment thesis. It’s about using powerful tools to automate part of the research process (like BorntoSell does with the strategy of selling covered call options).

Today’s financial Web is the largest investment club around.

So, what should we do about dwindling investment club numbers?  Nothing, but sit back and relax, boot up your computer, log on to Finance 2.0, and plug into the tradestream.

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