Investment Clubs

[ October 12, 1999 ]

A FatBloke Speaks

By Mark Goodson (TMFFatBlokeMarge)

A Foolish welcome to my first column in this section dedicated totally to investment clubs. I will be contributing 2 articles per month on investment clubs generally, and will also be looking at my own investment clubs, their progress and investments, together with tips on how to keep an investment club going and other general stuff. Other TMFs are also going to give regular monthly updates on how the Fool's investment club is coming along, so there will be a nice turnover of information for you to read (in addition to all the messages on the Investment Clubs message board).

The publication of this first article coincides nicely with release of my new book, The Foolish Guide to Investment Clubs (published by Boxtree and available from the Fool online bookshop). This book is a must for anyone thinking of starting or joining an investment club. But then, as the author, I would say that wouldn't I?

Anyway, I suppose a good place to start would be to give you a background into why I first started an investment club, and how I feel they can operate as a serious financial vehicle.

I'll try not to repeat too much of the book, but basically, prior to October 1994, I had suffered from a couple of completely unsuccessful investments. You know, those made based on no research or a hot tip. Very un-Foolish.

With no money but a keen desire to somehow get back into the stockmarket, I read an article on Investment Clubs in the Mail on Sunday. Seemed like a good idea -- a group of friends meeting once a month in a pub, having a few drinks, and learning about the stockmarket at the same time. I contacted some friends and H+G Investments was born.

Now no doubt many of you have read or heard about H+G. In short, I reckon that we are the most publicised investment club in the UK. There is no particular reason for this, other than that we are all extremely media-friendly. We all have a Foolish outlook, think Investment Clubs are great, and want to spread the word. I don't think it's coincidence that when we first launched the H+G media bandwagon, ProShare had some 300 registered investment clubs and today, 2½ years later, there are nearly 4500! I understand they are registering about 150 per month.

They basically operate in the same way as a unit trust. A typical monthly subscription of £25-£30 will purchase "units" at the current unit valuation calculated by the club treasurer (this is all explained in the book), and so each member has a holding of so many units, the value of which changes from month to month. Over a period of time, this can accumulate into quite a tidy sum, especially if there are 20 of you contributing (the legal maximum).

It occurred to me that I could run this alongside my small private pension, and I therefore look on H+G as a long-term financial planning vehicle. I mentioned this to other members, who agreed, but the question "when do we get any money out, then?" was asked.

I then had what I considered to be a great idea -- I'd start another club, only this time for a fixed term of five years. That way, all members knew that in five years the club would "mature" and they would (hopefully) get a lump sum back. It then struck me that if I started a new club every 2½ years, then there would be a constant stream of maturing "funds", giving a lump sum, and H+G would run nicely along in the background as a long-term plan.

The first of these five-year clubs, The Brass Monkeys, was started in May 1997, and all members gave it a kick-start with a £500 lump sum joining fee. Monthly subscriptions are £25. As I write I am in the throes of starting the second five-year club. The monthly subs for that one will be £30 and a similar joining fee will apply.

So, for a total capital outlay of £1000 and monthly payments of £80, I am a member of 3 investment clubs. My capital risk is well spread, I have a lot of fun, and I am not contributing to any fund managers' fat commissions. AND I get to spend 3 nights a month in the pub (hic!). A truly Foolish approach, I'm sure you'll agree.

Well, that's all for now. The next article will elaborate more on the performance of H+G and Brass Monkey, and will also highlight the pros and cons of adopting an aggressive investment strategy.

Oh, and by the way, don't forget to buy the book!!

For more on investment clubs, and any questions or comments, visit the Investment Clubs board. To discuss the Fool's Investment Clubs book, use its dedicated message board.