P/e over tea: investment clubs stage a comeback
Social investing was all but killed off by the solitary world of internet trading. But now it’s bouncing back, says Laura Suter
Think of the popular book club but, instead of discussing plot and characterisation over a glass of wine, you’re talking markets, price to earnings ratios and dividend yields. And how to make money. Investment clubs were popular in the Eighties and Nineties, but the sudden emergence of online share dealing at the beginning of this century turned investing into more of a solitary activity.
But now these clubs, like the markets, are bouncing back.
Alex Bueso of ProShares, an umbrella organisation for investment clubs, said that in the past 12 months there had been a sharp pickup in investment club registrations.
“This was at times a significant rise,” he said. “In a month we would get 15 to 18 inquiries from people wanting to start clubs,” he said. Typically ProShares has six new registrations a month.
There are two reasons for clubs’ resurgent popularity, according to Francesca Ecsery of The Share Centre, an online broker. One is the wish to make investing a more social and collaborative experience. The other stems from a need to share knowledge and experience at a time when markets are volatile and signals conflicting.
“While there is a social element to most investment clubs, there’s also a sound financial reason for investing collectively,” Ms Ecsery said. “Everyone has unique experiences and perspectives, and pooling that knowledge can be powerful.”
Mr Bueso agrees: “When investors talk between themselves, it’s a sanity check. It is good to have someone challenge what you think.”
Marjorie Sutcliffe, a former college lecturer, set up The 400 Investment Club, a Yorkshire-based all-woman club in the late Nineties – just as the technology bubble was bursting.
The club’s first investment was Tesco shares in 1999, followed by BT, Exel and Vodafone, with £500 invested in each company.
The club, which started with 10 members, has learnt a lot.
“Initially we were looking for growth, but some of our decisions turned out to be better than others. We probably held on to some shares too long, particularly dotcom companies,” said Ms Sutcliffe.
Each member contributed £25 a month up to a total of £1,000. They have not contributed any new money since 2002. The group meet up every two months to share ideas and decide where to invest the money. Ms Sutcliffe is treasurer.
The 10 members take profits in the form of a payout every Christmas. While they may have started when the market was at a sky-high peak – the FTSE 100 recovered its 2000 high only in 2015 – by continuing to invest throughout the intervening low points they have made some handsome gains.
“From experience we have learnt not to become attached to individual companies. We never buy on impulse and members research companies which we then monitor for a time before buying,” she said.
The club has a social side to it, with members organising theatre trips, lunches and days at the races, as well as their usual club meetings.
John Heard, from Solihull, is a member of another six-strong investment club named The Stargazers. They gather monthly in a pub. Each member also contributes £100 a month, with 5pc deducted each month to pay for drinks – “which encourages people to come”.
Having run for about 15 years the group peaked with 12 members, a number that he said “became unmanageable”.
“There were too many people with different ideas. Meetings dragged on and on,” he said.
Some years ago, after a string of severe losses, some of the group decided to leave.
The club had drawn up a constitution dealing with such situations.
Mr Heard said: “At the time we had a lot of shares that were losing us money. We had a clear-out. As a result we become more enthusiastic.”
The group “very rarely” has heated debates about whether or not to buy certain stocks, but Mr Heard admitted that he was “not going to make a fortune” through the club. He has invested around £11,000 over the years and on this sum has made total profits of about £8,500, of which £7,000 he has withdrawn.
He often invests his personal money in some of the shares discussed in the meetings too, through other accounts.
Mr Heard said it was “difficult to say” whether he enjoyed the club more for the investment or social side.
“It allows us to use an interest in investing without the same degree of personal risk. By contributing £100 a month it forces us to save a little more than we might otherwise have put aside – and yet it spreads the risk. If something goes wrong, it’s not on your shoulders alone,” he said.
There’s a local slant to the investing as well. Mr Heard said his club invested in convenience shop chain One Stop, before it was bought out by supermarket giant Tesco, because a member lived next to one of the company’s warehouses and saw a large pickup in activity.
“It was one of our most profitable shares, which we bought purely on the basis that he’d seen lots of lorries coming in and out of the warehouse,” said Mr Heard.
For Ms Sutcliffe, fertiliser company Sirius Minerals is of interest at the moment as its Yorkshire Potash project is in the club’s local area.
“We have been fortunate in achieving what is the goal for every investor – ‘ buy low, sell high’ and have made a substantial profit on Sirius shares to date,” said Ms Sutcliffe.
The principle of “club” investing goes back to the 1800s, when investment trusts – companies in their own right comprising numerous
small shareholders – pooled capital together to benefit from lower risks and reduced costs of trading, and to give them access to a wider range of assets. The same benefits apply to the even more popular “investment clubs” of the 20th century – known today as “unit trusts”.
Small, self-managed clubs simply replicate these structures on a small and non-commercial basis, brokers say – often with excellent results.
Both Mr Heard and Ms Sutcliffe said it was important for all investment club members to be involved, turn up regularly at meetings and generate ideas for potential investments, as well as the arguments to back them up.
“We have one member who admits he’s too busy to do lots of research. But that’s OK, because he’s the local butcher – and I get a discount on my sausages,” said Mr Heard.
A good chairman and treasurer is vital, clubs say (see box, above).
“It really helps to have an efficient and hopefully knowledgeable driver of the club,” Ms Sutcliffe said.
‘We bought one of our shares only because we’d seen all the lorries – a huge win’
Marjorie Sutcliffe (in green scarf) heads The 400 Investment Club
‘Club’ investing has origins in the 1800s