Investment Clubs

[ November 9, 1999 ]

Getting Things Started

By Mark Goodson (TMFFatBlokeMarge)

My last article mentioned that The Dirty Harry Investment Club was going to have its inaugural meeting.

Well, that has now happened. The full complement of 20 members has been reached (with a waiting list) and all have coughed up the £500 joining fee.

This means that at our next meeting we will have £10,000 to spend, although whether or not we will have learnt from our previous mistakes remains to be seen! You may remember that In the Brass Monkeys we invested the lot in what turned out to be the top of the market. This hurt badly as the market "corrected" itself.

So, will we blow the whole lot this time, or perhaps spend across 2 or 3 meetings? Who knows? But, in fairness, there is a valid point that this is an investment club, and the investments can't perform if they are not made in the first place! Anyway, we shall see. This is another club with a fixed life of 5 years. We will be discussing the investment strategy in more detail at the meeting, but I would imagine that the initial portfolio split would be something like this:

25% of the portfolio in an "Obviously Great Investment" (otherwise known as an OGI) such as Vodafone Airtouch (LSE: VOD), BP Amoco (LSE: BPA), etc.

50% of the portfolio in growth or value stocks that we perceive to be undervalued at the present time, but which we expect to perform well across the 5 year period.

25% of the portfolio in a slightly less Foolish approach, but one which is possibly important for a club. This will be looking at short term performance, and maybe will have a "stop gain" and "stop loss" figure applied. This will enable us to turn over funds on perhaps a monthly or bi-monthly basis so a variety of different investments can be made. This helps maintain interest among the members.

My workload will not allow me to take on any more Treasurer's jobs, and so I was elected Chairman of "The Dirty Harry's". I therefore have the task of breaking up the fights and calling the beer breaks! (Mmmmm... Beer..)

Anyhow, I will be ably assisted by my fellow officers in this club. These are: Barry Lake (Treasurer), a great friend of mine and someone who has been most supportive in all the Investment Club ventures I have run. He also holds the world record time for eating a whole packet of Refreshers. The secretary's post was filled by another friend, Dave Colwell, who bravely volunteered for the position - and it's his first venture into the financial world of Investment Clubs!

So, how do things get going at that first meeting?

Well, apart from getting everyone to agree that it's a good idea, the main purpose of the inaugural meeting is to adopt the rules and constitution, and to select stockbrokers and bankers. This is where some serious consideration is required. The Treasurer will need to be able to pay in money fairly easily. It may be preferable to have an account that provides a cheque book rather than another type that might pay an extra ½% interest. Convenience and ease are the most important points.

Now, choosing a stockbroker is slightly different. Of course, convenience and ease will play a major part, but as a Club, you first have to decide whether or not you wish to use an advisory or an execution-only broker. The advisory broker should be at your beck and call and you can ask for advice, tips, etc. However, the charges could be literally 4 times as much as an execution only broker, and it really pays to try and keep dealing costs to a minimum, especially when the club first starts and the trades may be comparatively small.

And, lets face it, you are trying to learn as a club, so why take brokers tips and advice in any event? I would therefore recommend an Execution only broker. There is plenty of info on the site about choosing a broker and this is very much a club choice. Beware hidden costs, though! The deals may look cheap, but there could be a lumpy annual charge to hold the certificates as nominees, or a quarterly "management fee" that you have to pay regardless, thereby increasing the club overheads.

I hope that's given you a bit of an insight into the inaugural meeting.

The next article will focus on the Brass Monkeys. We are now halfway through our term and to date the investment performance has been, well, poor is probably too kind. This has been a mixture of bad luck, poor timing, bad decisions and a change in investment strategy that simply did not work. Read about what's happened, how we are trying to remedy it, what was bought and sold and why.

In the meantime, don't forget to look out for the new Motley Fool publications, the Investment Workbook and the Fools Guide to Investment Clubs, available from the online Foolish bookshop.

Fool On!

Questions and comments to the Investment Clubs message board, please.