Investment clubs

1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25   

9. Example of an investment strategy

John Robins and Diane Burgess are neighbours in the village of Darnley. They discovered a mutual interest in investment clubs and decided to go about forming one. They met for a couple of hours or so one evening and agreed their starting point. This is what John documented subsequently:

• The aim of the club is to build a portfolio of shares as a long term savings scheme.
• Members joining should be prepared to subscribe on a monthly basis for at least five years.
• At this point it is envisaged that there will not be a definite time for winding the club up.
• It will carry cash only in the very short term, when subscriptions are building, for example or in unusual circumstances, such as saving to repay a member.
• All income will be re-invested.
• The club will use an execution-only stockbroker service.
• Due thought will be given to one of the over-riding tactics of the fund which is to minimise fees paid out.
• The monthly subscription fee will be a minimum of £50 and to begin with a maximum of £150.
• The club will meet monthly on Saturday mornings, and meetings are expected to take two to three hours.
• Meetings will take place in member's houses.
• Anyone interested in joining will be invited to the inaugural meeting of the club when all the above and other matters will be discussed and agreed by those deciding to join the club.

The fund will recognise 3 levels of risk.

Low-risk
This is defined as companies which are in the FTSE 100 list of the 100 largest UK listed companies.
Once bought, the shares will in most cases be held. They will, however, be considered for sale following a long period of under performance.

Medium risk
This part of the fund will concentrate on foreign and other Investment Trusts with a volatility of less than 6.0.
It will also cover shares in the FTSE Mid 250 companies in the UK where it is felt that unusual growth is available. In these circumstances an appropriate stop-loss and unusual profit figure will be set. If the price reaches either of these, the shares will be considered for sale.

High risk
Included in high risk will be Investment Trusts with a volatility of 6.0 or greater.
There could also be shares in high risk companies, small companies, warrants and options for geared growth. The fund will never write options, so that the risk is limited to the money in the high risk part of the portfolio and cannot affect the rest of the fund. In these circumstances an appropriate stop-loss and unusual profit figure will be set. If the price reaches either of these, the shares will be considered for sale.

Mix of risk
The fund will be run at 60% low risk, 25-30% medium risk and 10-15% at the high risk level. Within these broad guidelines, the members attending monthly investment strategy meetings are free to make investment decisions.

Benchmark
The long term aim is to outperform the average unit trust.

Date of draft:

1. What is an investment club? 2. A simple explanation of how it works 3. Why join an investment club? 4. Deciding on your aims 5. Joining an existing club 6. Preparing to launch a new investment club 7. The draft constitution and rules 8. Drafting the investment strategy 9. Example of an investment strategy 10. Attracting members to your club 11. Preparing for the inaugural meeting 12. The inaugural meeting - appointment of officers 13. The inaugural meeting - key decisions 14. Things to do after the inaugural meeting 15. Starting the processes 16. Running the first meeting 17. Regular meetings - the key to success 18. The cash account 19. The capital account 20. The asset register 21. The annual general meeting 22. Tax 23. Performance measurement 24. Dealing with a member leaving 25. Conclusion

• ProShare Investment Clubs Looseleaf Manual
• The Motley Fool Guide to Investment Clubs
• The Company of Successful Investors