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How our village beat the FTSE using an investment club - Mail On Sunday
The following is taken from article published in The Mail On Sunday and can be viewed on the link: How our village beat the FTSE using an investment club - 25 September 2010. Many thanks to Stephen Womack who wrote the article, including details about the National Investment Club Conference 2010 which takes place at the QE2 Conference Centre on the 13th November 2010.
The bottles of wine and Old Speckled Hen beer stacked up at the side of the room signal it is time for a meeting of the Carlton Investment Club. Over a glass or three, a group of friends will spend a lively evening catching up with each others’ news, planning social activities and, just occasionally, discussing the progress of the shares the club owns.
It has been a volatile few years for share prices, which first soared on the back of a commodities boom before slumping sharply after the credit crunch and banking collapses.
While markets have since recovered from the worst of the losses, investment clubs have not been immune from the turbulence. These clubs allow savers to band together and spread the risks of investing, both learning together and, hopefully, having some fun.
John Cotter of Barclays Stockbrokers says: ‘We had 3,000 investment clubs on our books three years ago and, though there have been a few casualties through the harsh markets, we’ve still got 2,800 clubs still active.’
Financial Mail featured the Carlton Investment Club (CIC) in March 2005 and returned to see how the club has coped with the financial turbulence.
The 14 members, including four married couples, have been meeting for ten years. They range from doctors and a dentist to a retired teacher and a former gas engineer, and all live in the village of Carlton, Leicestershire. Each member pays £25 a month, a contribution that has built up into a portfolio worth more than £41,000.
The members seem as enthusiastic as they did five years ago, both for the business of investing and for the refreshments on offer.
Company director Nigel Axelrad, 53, who is a member along with his wife, Janie, 54, says: ‘We change the officers of the club – the chairman, secretary and treasurer – each year. And that helps to refresh the club, with each person bringing new energy and new ideas.’
Patricia Lockwood, a 60-year-old retired special needs teacher, is chairman for this year and has the unenviable job of keeping the meeting in order. She is keen to press on with the business of the night and, clearly making a standing joke, warns that ‘anyone who has brought a graph along will only be allowed to talk for a maximum of two minutes’.
The meeting takes place around the kitchen table at the home of doctors Tom and Liz Alun-Jones and starts with a report on how the club’s investments have fared. A cheer goes up at the news that their portfolio managed a one per cent gain last month compared with a one per cent fall in the FTSE 100 index.
Star performer is mining company Centamin Egypt, which has developed a gold mine at Sukari in Egypt’s eastern desert near the Red Sea. Its shares gained 16 per cent and are now almost double the price CIC invested at.
But there are losers too, with telltale red beside the names of six holdings on the printouts in front of each member.
Overall, the club has beaten the Footsie in 11 of the past 18 months, a creditable performance. But joining CIC hasn’t made anyone rich yet – the ten members of the club who have been there since the start have seen a return of 12 per cent on their investment.
James Igoe, 53, who runs an adhesives manufacturing company, says the club meeting is one of the highlights of the month. ‘Being in the club is not really about the money,’ he says. ‘It is the social side that is all-important. If your club isn’t made up of like-minded people, it will fall apart.’
Cotter says: ‘The market falls of 2008 would have given many investment clubs a sharp burst of reality, but it is better to have experienced these sorts of markets within the shelter of a club. Some will have used those losses as an opportunity to redirect their investments.’
The club has certainly adapted its strategy to help cope with changing times. It now has a bias towards gold within its portfolio of 25 shares, holding mining giant BHP Billiton, Centamin Egypt and an exchangetraded fund tracking the gold price. It holds two other commodity ETFs, which are also an innovation in the past two years.
Treasurer Russell Buxton, 47, a manager for an aerospace company, says: ‘We have introduced a stop-loss policy, which means that if a share falls 25 per cent or more it is automatically sold.’
The club has been testing a more sophisticated trailing stop-loss policy for the past three months, where the floor-price at which a sale is triggered can rise in line with the value of a share. The meeting agrees to carry on with the new strategy.
After recent rises in the Footsie, Carlton’s members are feeling bullish. Each member has the chance to recommend a share to buy or further investment, presenting the case to the rest of the club.
Eight companies are suggested and six investments agreed, including top-up investments in Centamin Egypt and the gold ETF and a new investment in India’s Essar Energy, which was listed on the London Stock Exchange last May.
But overall, the club has adopted a more defensive line, holding higher weighting in cash and more bluechip companies. And it is not alone. James Daly, an investment adviser at stockbroker TD Waterhouse, thinks investors in share clubs are less gung ho than they used to be. ‘We’ve noticed that where people are opening new clubs they tend to have quite strict rules about what shares they will and won’t buy,’ he says. ‘Some even have fines for members if you don’t pull your weight and do the research.’
Another investment club with ten years of investing experience is the Mill Men. The club was formed in May 2000 by six workers at the John Dickenson paper company who worked at the mill in Apsley, Hertfordshire.
The mill, which made quality notebooks and paper, has since closed but the club has gone from strength to strength and now has 13 members, each of whom invests £25 a month.
Chairman David Elkins, 69, a former marketing manager, says: ‘We were all mates at work and with some of us nearing retirement we wanted a way to keep in touch. We didn’t go into this to make our fortune, but we have had some profits out of the club over the years.’
As well as annual dividends, members got a special payment worth on average £600 a head earlier this year as they took profits from some of their successful investments.
The Mill Men, who meet once a month at St Stephen’s church hall in Hemel Hempstead, mix a defensive core of solid dividend-paying investments, such as Tesco and Rolls-Royce, with shares in more exotic smaller companies. The members, for example, made good profits earlier this year by investing in Rockhopper Exploration and Desire Petroleum, which are prospecting for oil around the Falklands. In all, 40 per cent of the portfolio is in oil and gas shares.
David says: ‘We want every club member to play their part and to research at least a couple of shares each year.’
The monthly meeting sets overall investment policy and decides which shares to buy and sell. In addition, an ‘e-committee’ of three people keeps in touch by email and can make opportunistic trades around limits set by the full club. All dealing is done online through the club’s account with its broker, The Share Centre.
And most weeks, David gets together with the treasurer, Eddie Harniman, and the club’s secretary, Peter Garner, for a quick pint on a Friday night.
The social aspect of the club is essential in binding people together. As well as sharing a drink before and after meetings, members arrange dinners and, most years, take a day trip to France. David says: ‘It has stayed fun and that is what keeps people coming back.’
Getting started all you need to know
How does an investment club work? A group of friends, colleagues or neighbours pool their money to invest in shares.
Is there a set formula?
No. Clubs may adopt whatever style of investing they like. Some will specialise in small companies, others might opt for solid
dividend-paying shares. Clubs can meet monthly or quarterly. They tend to work best if
membership is not more than 20 so that everyone can have a say, but decisions can still be made quickly.
How do you get started?
You have your first meeting and draw up a constitution, agreeing aims and a rough investment strategy. You will need to set up a bank account for the club and pick a stockbroker to deal through. Brokers offering accounts for clubs include Selftrade, The Share Centre, Barclays and TD Waterhouse.
What if I want to leave?
Either a new member may be invited to buy the departing member’s units at the current price, or a portion of the club’s portfolio is sold to provide the cash to pay the departing member. Each member has to account to the Revenue for tax on any profits or income they receive.
Where can I find out more?
For a flavour of investment clubs, visit proshareclubs.co.uk. If you want to go further, ProShare produces a manual. It costs £25 and includes a draft constitution. There is also useful information at timetotrade.co.uk, which produces free software for investment clubs.
The National Investment Clubs Conference and Exhibition, staged by volunteers from clubs around Britain, will be held at the Queen Elizabeth II Conference Centre, central London, on November 13. For more details on the event, go to National Investment Club Conference 2010
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