Value Investment Club

There are various forms of investment out there, and while a lot of people seem to be concerned about how to get returns on their investment (ROI), some others are more concerned about how to go about making their investment decisions.

With different strokes for different folks, there is not any one way to make an investment.

Value investing is one of the many ways investors take advantage of some stocks in the market.

What is Value Investing?

Value Investing is an investment strategy in which investors select stocks that have been undervalued in the market. It is an investment strategy where stocks, bonds, real estate, or other assets are bought for less than they are worth.

Value investors learn to find an asset's intrinsic value and have the patience to wait until it can be purchased at a price that is less than that intrinsic value.

The simplicity of value investing is its distinguishing feature.

Value investing is based on the idea that when you buy stock in a firm, you're buying a piece of the company. While this may seem self-evident, many investors "play the market" without considering the basics of the companies they buy.

The investor, like a business owner, should review the financial accounts of enterprises to determine their intrinsic values. Fundamental analysis is the term for this form of evaluation.

When it comes to value investing, identifying value stocks might be challenging to some, but with a few steps, one can make the right move when value investing is concerned. 

They include the following;

The intrinsic value should be known

The most crucial concept you should be familiar with in value investing is “intrinsic value.” To put it in simple terms, it is the genuine value of a stock in the market.

Market conditions, global trends, and other factors might cause stock prices to fall below their intrinsic value at times. A value investor searches for these changes when the stock of a reputable, high-value company falls in value due to market conditions and then acquires it.

Margin of safety

If a stock has an intrinsic value of $150 but is now trading at $90, the difference of $60 ensures that you will benefit more than someone who purchased the stock at its intrinsic value. This is known as the margin of safety, and it is a major factor in value stocks generating more money.

When compared to investing in normally-priced stocks, value investing focuses on placing our money into a stock that is at a cheap price. As a result, the odds of additional price depreciation are substantially smaller.

Don’t go with the crowd

The essential to value investing is to avoid the herd mentality. If a large number of individuals are buying a stock, a value investor will most likely ignore it. 

Value investors such as Warren Buffet have made their fortunes by breaking away from the herd mentality. A value investor's main goal is to figure out what a stock's intrinsic value is and buy-in it when everyone else is ignoring it.

How Value investment can be a club for investors.

Playing it safe in investment can be a good strategy, to avoid any form of heavy loss. It may not necessarily have to involve one person alone.

It can be much safer to play as a “team” than going all the way alone, bearing the risk and the loss.

Investors can come together and pool their resources to make investments, not only that, there can be some oversight as to what one person may miss in carrying out research, another can catch and that could just save the whole team.

Investment clubs have proven to be a good bet for investors who share the same value and are willing to work together to achieve their common goal.

With value investment, it can be just a perfect way to play in the market, playing as a team.

Warren Buffet, who is one of the richest men in the world, is known to be a big player when value investing is considered. If one man could have been able to amass such wealth through value investing, it tells that with a larger group with even more funds and capital, much more can be gained.

It is however important, that as one sets up an investment club with the aim of value investing, there is adequate knowledge for every team member who wants to play in the market.

What is an investment club?

A group of people that combine their money to make investments is referred to as an investment club.

Investment clubs are typically structured as partnerships, with members studying various investments before deciding to buy or sell based on a majority vote. Meetings of the club can be informative, and each member can take part in investing decisions.

How to form an investment club

Seeing the importance and the value one can get from an investment club, here are a few steps to take in setting up one.

Search for potential members of the club

The initial step is to identify and organize potential members. This is the most difficult phase because the principle of an investment club is that you must give money and time to a communal pool.

Aim for a club of ten to fifteen members, but anything between six and twenty will suffice. When there are fewer people, it may be more difficult to gather sufficient funds to invest, some investments require larger investors.

With a large group, however, maintaining high-quality talks as well as locating a meeting location become issues.

After you've discovered potential members, consider the following questions:

• Do you trust them?

• Do you trust that they will pay on time?

• Will they carry out their research?

• Are they organized and keep records?

Set up the structure of the organization

You'll need to put up an organizational structure for your investment club once you've located some potential members.

The structure of a smaller club can be more casual. When it comes to dealing with money, however, having a pre-defined structure is always better, regardless of how few your members are.

As a club, an agreement should be made in the following areas to ensure a peaceful co-existence of the members, they are but not limited to;

• Club Directors. This includes the president, vice president, treasurer, and more. Determine how they are elected and how long they will serve in their roles, as well as the positions themselves.

• Time and location of the meeting. When you have a small group it is easier to meet in a home belonging to any of the members.

• Club rules. There should be rules guiding buying and selling and how to handle payouts and distributions. 

• Keeping of records. Members will want to know their share of the equity at all times, so keep precise records at all times. Make a plan for how you'll do it and how you'll tell club members about it.

Set up a legal structure

A partnership is the most frequent legal structure for an investing club. You'll need a partnership agreement and operational agreements in such a situation.

Paying a little money to a lawyer to create some documents now can save you a lot of trouble later.

In order to obtain an EIN (Employer Identification Number) from the IRS, you'll also need to register your group.

After you've established your legal framework, you'll need to open a brokerage account. Many full-service brokerages provide accounts for investing clubs, although they tend to charge greater fees to trade.

Develop a common agenda

You'll need to create a uniform agenda for each meeting when your club's legal frameworks are in place.

You should review your financials and performance at each meeting. Larger clubs may do this just with the directors, then send messages to members via email. They usually examine investment holdings as well, in order to identify and address underperforming assets.

Most clubs assign "homework" to their members or assign research to them. Typically, the club will pick a target sector or investment type, then delegate research to companies. The club will reassemble and debate its results at the next meeting.

Clubs may be different but they should seek the following;

• Discuss or make a decision on how to invest in.

• Education or presentations for its members.

• Discussion and Research of various companies and stocks.

Make moves

After deliberations have been made and proper research has been done. The group can take action and act based on every information they have.

As wins are recorded, the group should endeavor to celebrate those wins, be it small or big even as they strive for bigger wins.

Conclusion

A value investment club may be a step in the right direction, but knowledge is key when it comes to investing, as well as a common goal.

Beyond the pooling of resources together, a proper structure and the establishment of a common goal would most likely be the first major win for any value investment club.