Why not start an in­vest­ment club?

Finweek English Edition - - INVEST DIY -

Ihave al­ways said that while in­vest­ing is not rocket science, it does take time to un­der­stand all the ins and outs of stock mar­kets and stock se­lec­tion. In truth we never stop learn­ing, but that ini­tial learn­ing curve is steep. Tack­ling in­vest­ment col­lec­tively is one way of re­duc­ing that learn­ing curve – which brings the idea of in­vest­ment clubs to mind.

In­vest­ment clubs were a big theme dur­ing the dot-com boom but seem to have faded away over the last decade or so, yet they have a num­ber of ad­van­tages for the in­di­vid­ual in­vestor.

The abil­ity to pool cash re­sources po­ten­tially re­duces trans­ac­tion fees, as each trans­ac­tion can be larger, while more money means a wider range of shares can be bought, equalling diver­si­fi­ca­tion.

Broadly speak­ing, an in­vest­ment club con­sists of a group of peo­ple look­ing to learn and cre­ate wealth by in­vest­ing in the stock mar­ket. Prac­ti­cally, they will make reg­u­lar con­tri­bu­tions to a joint fund, while de­cid­ing to­gether about what to in­vest in. When any group forms, r ules are re­quired. The ini­tial ex­cite­ment of work­ing to­wards a com­mon goal could wear off quite quickly, so you need to en­sure that ground rules that have been agreed upon by all mem­bers are firmly in place.

The process starts by form­ing a part­ner­ship – a sim­ple yet legally bind­ing agree­ment be­tween a group of peo­ple. The part­ner­ship will have a con­sti­tu­tion, which in­cludes rules re­gard­ing the roles of mem­bers be­long­ing to the part­ner­ship.

The chair­per­son will run pro­ceed­ings and a vice-chair­per­son could also be ap­pointed if the group is large. The re­spon­si­bil­ity of each mem­ber needs to be clearly de­fined from the out­set and it is the chair­per­son’s re­spon­si­bil­ity to make sure all mem­bers are ful­fill­ing their du­ties.

The t rea­surer is re­spon­si­ble for en­sur­ing monies are paid, while the trader will carry out the trans­ac­tions as agreed upon by the group.

In or­der to keep a record of de­ci­sions made, a sec­re­tar y will need to be ap­pointed.

Fi­nally, a mem­ber needs to be as­signed to mon­i­tor the fi­nan­cial oper­a­tions of the Here you need to make sure ev­ery­thing is very clear. I would sug­gest that with­drawals are ac­cepted given a clear­ance pe­riod of one to three months. The clear­ance pe­riod pro­tects the club from be­ing forced to sell im­me­di­ately in or­der to raise cash. Another way of man­ag­ing this is to al­ways keep a per­cent­age of con­tri­bu­tions in cash, say 5%; a mem­ber can then with­draw 5% im­me­di­ately and the bal­ance would re­quire a wait­ing pe­riod.

It is im­por­tant to keep a record of growth and each mem­ber’s hold­ing. I al­ways uni­tise the port­fo­lio so ev­ery­body’s hold­ing value is easy to cal­cu­late (I will write a sep­a­rate col­umn on uni­tis­ing a port­fo­lio).

Lastly, you need to f ind a group of peo­ple and this is of­ten eas­ier than you’d think. Ask around at work, your friends and fam­ily or try Twit­ter and Face­book. Ideally you’d want four to 10 peo­ple and find­ing a group of that size with a cou­ple of hun­dred rand to in­vest ev­ery month shouldn’t be too hard. Set reg­u­lar meet­ings and start the process of learn­ing and in­vest­ing and per­haps even more im­por­tantly, hav­ing fun.

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