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Investment clubs: How sharing ideas and pooling money can help investors - Daily Mail
The following is taken from article published in The Mail On Sunday and can be viewed on the link: Investment Clubs: How sharing ideas and pooling money can help investors - 1 July 2012. Many thanks to Stephen Womack who wrote the article, including details about the National Investment Club Conference which takes place at the QE2 Conference Centre on the 3rd November 2012.
Starting up your own club
Who can get together?
A club can be started by any group of friends, colleagues or neighbours who are willing to pool their money to invest in shares.
Is there a set formula?
No. Clubs can choose whatever style of investing they like. Some will specialise in smaller companies, others might opt for solid dividend-paying shares. Clubs work best with a membership of between ten and 20 so that everyone can have a say while allowing decisions to be made quickly.
What are the first steps?
At the first meeting you need to draw up a constitution, agreeing aims and an outline investment strategy. You will need to set up a bank account for the club and pick a stockbroker to deal through. Brokers providing club accounts include Selftrade, The Share Centre, Barclays Stockbrokers, Hargreaves Lansdown and TD Direct. Most clubs run for a few months building up funds before they start investing.
What if I want to leave?'
Either a new member may be invited to buy a 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. For tax details, search for ‘investment clubs’ at hmrc.gov.uk.
Where can I find out more?
For a flavour of investment clubs, visit proshareclubs.co.uk. There is also useful information at timetotrade.eu, which produces free software for investment clubs. timetotrade is planning the next National Conference for Investment Clubs on November 3 in London.
Sharing ideas and pooling money can help investors to steer a safe course in today’s volatile stock markets.
Investment clubs, where friends get together to research and buy shares, have held up surprisingly well through the financial turmoil of the past five years.
Stockbroker The Share Centre says there has been an increase in the number of clubs and their level of trading over the past three years.
David Jeal, head of product management at online stockbroker Selftrade, says: ‘The real health of a club depends as much on the members’ attitude as it does on financial markets. If you have got lots of people engaged in a club and enjoying it, the club is more likely to thrive than if there are only two or three members doing all the work.’
Reservoir Dogs Investment Club in Coventry has been running for 12 years. It grew out of a group of school friends and work colleagues who socialise together.
The ten members meet each month to discuss markets and which shares the club will buy and sell. But the social side is an important part of club life. Mick Irwin, one of the founders, says: ‘We’ll get through the formal business of the meeting in an hour, maybe an hour and a half. But we’ll then be out all night, having a drink and chatting.’
Over the years the club has used various pubs and now meets at the bar of the Coventry and North Warwickshire Cricket Club. Like many clubs, members have a wide range of skills but no background in investment. Mick, 45, is an accountant at an engineering firm. Other members are IT consultants and engineers.
Mick says: ‘We all have our own personal investments which tend to be more secure and conservative. Our club is about having the chance to invest in something different.’
Each member invests £25 a month with the focus on high-risk, high-reward shares. Reservoir Dogs has recently been hunting for profits in oil exploration and bioscience companies, although with mixed results.
Profits have also been dented by an important club tradition. Mick says: ‘Each December we have a curry night where the club pays for the meal and all the beer.’ Despite the opportunity to socialise, club members take their investments seriously.
With markets so volatile, they have to work harder for every penny of profits.
One change is the growing use of a ‘stop/loss’ on investments. These are instructions left on file with a stockbroker to sell a share if the price falls below a certain level. For example, a share bought for 200p can have a stop/loss set at 160p. This means the maximum that can be lost is 20 per cent of the investment.
Stop/losses can be useful for clubs because if a share suffers badly they do not have to wait until the next meeting to sell. Reservoir Dogs makes regular use of stop/loss provisions.
Clubs are also buying a wider range of investments. Jeal says: ‘We’re seeing more clubs using exchange-traded funds and exchange-traded contracts.’ These allow investors to track the performance of an index, such as the FTSE 100, in a single share.
There are also ETFs that cover specific sectors, currencies, or commodities, which allow a club to widen its horizons and to make money from international markets.
Such vehicles are also inexpensive.
Another area of growing interest is retail bonds. Companies such as Tesco, National Grid and Lloyds Banking Group have been raising money by issuing bonds that can be bought and traded by the ordinary investor, but that still pay a decent rate of interest.
Overall, clubs are trading more frequently. The Share Centre found its investment club clients had on average completed nine per cent more deals over the three years to this month than in the previous three years.
Evolving technology has also changed the way clubs work. Jeal says: ‘It used to be that if someone moved away from an area or was posted abroad with work, then they would have to sell up and leave a club. But now with email and social media websites, you can keep in touch with your mates and stay involved in the club, even without going to every meeting.’
A group of students at Nottingham University has taken the concept one step further, running an investment club where the majority of meetings are held as conversations on Facebook.
The 60 members of Nottingham Undergraduates Equity Fund pooled their resources, raising £12,000 to give them a taste of investing in stock markets.
Joe Davis, 22, one of the club’s founders, says: ‘We have our own group on Facebook and people converse through that, dipping in two or three times a day to propose and discuss ideas.
‘This means we have a record of everything said. It is helpful sometimes to scroll back and look at the reasons why a share was bought.’
The club’s money was invested last November with the fund running for the academic year. All the investments have now been sold so that the money could be returned to students before the end of term last month.
Over the academic year, the fund returned £99 of every £100 invested, beating the FTSE All-Share index, which is down roughly four per cent over the same period.
Joe says: ‘We were doing really well until March and we were showing a reasonable profit, but we were caught out by the sudden stock market falls since.’
With 60 members, having a single committee to decide on investments is impractical. Instead, the students split into ten sub-groups, each researching and making recommendations on a different sector of the stock market.
Joe led the team looking at energy companies, which turned their £1,200 initial investment into £1,700. He says: ‘We did well out of smaller oil companies such as Xcite Energy and Cove Energy.’
The students had a helping hand. Selftrade sponsored the club, covering dealing costs and commission for 100 share purchases or sales over the year.
Joe is due to graduate with a physics degree this summer and hopes for a career in finance. He has already agreed a five-month work placement with a London investment bank, partly on the strength of his work with the investment club.
Others members of the club are returning to Nottingham in the autumn and plan to run the fund again for the next academic year.
‘We have beaten best savings accounts’
Any investment club needs a system to divide profits or losses fairly between members.
This system also has to allow new members to join and existing members to leave.
Most clubs opt for a unit valuation scheme, similar to the model that is used by mutual funds such as unit trusts. St Bede's Investment Club treasurer Douglas Rankine
The value of shares held is translated into units with members owning their personal units.
The unit price will fluctuate with the performance of the club’s investments.
Each monthly contribution from a member will buy a different number of units, depending on the price. Likewise, a member leaving gets the current price for any units they sell.
The system is flexible enough to allow for members to take a payment holiday – for example if they suddenly lose their job – or to accommodate different levels of monthly payments.
Each club needs a treasurer who will manage the system, typically with the help of a specialist computer software package which automates the calculations.
The unit valuation approach has served St Bede’s Investment Club well over the years. The club on the Isle of Wight, which started investing in 2001, took its name from the house where one of the earliest meetings was held.
The 14 members, who contribute between £20 and £40 each every month, have built up funds worth £46,000.
The original members were recruited through a local computer club and from the start the club was set up to harness technology with its own online news group.
Douglas Rankine, 66, one of the founders and treasurer, says: ‘We have built our own spreadsheets to calculate unit values and also have spreadsheets to help with share analysis.’
The club splits up the work of researching investments so that different members develop specialist skills.
Douglas, a retired TV engineer, analyses company debt and annual reports. Another member is the club’s chartist, producing charts of how a share price has moved to highlight buying opportunities.
Douglas says: ‘Our original aim was to produce a better return than the best savings account and we’ve managed that, returning a bit over ten per cent a year.’
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