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Investment clubs
Terry Bond, active private investor and one of the founding fathers of the investment club community, explains why you should think about going clubbing when backing the stock market
Friendships, like minds and love affairs, need stimulation if they are to stay alive and thrive. Regular get-togethers can change from being eagerly anticipated pleasures to lacklustre chores if the only motivation is to reminisce about times past.
But lasting friendships are hard-won and there is a determination among most of us to preserve them beyond the workplace, the golf club, the gym or even the family home. That is why the investment club movement in Britain is flourishing, while other communal activities languish.
Over the past decade, through financial bull and bear markets, the idea of getting together with friends to dabble in stocks and shares has spawned more than 12,000 amateur investment clubs in the UK.
Investment clubs have two big advantages over individuals who try to pick profitable shares. For starters, members will quickly gain experience of sensible share selection and trading because the learning curve is that much easier if you are doing it as a group.
Secondly, you will be considering shares in businesses where your fellow members, through their experiences in different spheres of work, will have an expertise. In other words, more heads can be so much better than one.
This 'circle of competence' is what enables investment clubs to constantly out-perform professional fund managers in the City, according to regular surveys conducted by website DigitalLook.com, which runs the ProShare Investment Club movement.
Most investment clubs start with two or three friends getting together to discuss the concept, which is quite easy to grasp. Each member pools a regular amount of his or her spare cash, typically between £25 and £50 per month. The club meets monthly, usually in the private room of a pub or club or on a rota system in members' homes. There is a chairman to keep order, a secretary to take minutes, and a treasurer to keep the books and pass on buy and sell decisions to the club stockbroker.
Any member can suggest a share for consideration and present reasons for putting it forward. The club then debates all the proposals, examining each business against a set of pre-determined yardsticks. Everyone gets a chance to have their say, express an opinion, and then a democratic vote is taken on which shares to buy.
After a few months the club will have built up quite a portfolio - and that's when the fun really begins.
The size of a portfolio must be manageable so ideally the club should never hold more shares than it has members. Also, a share never makes a real profit until it is sold. So at each club meeting the decisions are not only which shares to buy but also which should be sold and which should be held for future consideration.
Most clubs are run by friends, family or colleagues, but the most important consideration when forming a club is that members should have diverse interests and skills. Some of the most successful clubs are based on drawing from experience from all walks of life.
Above all else investment clubs are a fun, sociable and less risky a way of investing in the stock market. So much so that many investors catch the investment club bug and belong to multiple clubs and regularly set up new ones. Clubs are designed to help you earn and learn at the same time. The majority of stock market novices who join a club go on to establish and run their own portfolios.
Terry Bond's views represent his own opinions and are for general information only. Always seek independent financial advice.
This article was created: 18 April 2007.
This article was last edited: 18 June 2007.
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