A recent thread on the Investment Clubs board has highlighted a problem that I personally have not yet encountered. Apathy.

Poor old smudgerone has been trying to start up an Investment Club himself. He mistakenly thought that everyone else would be as enthusiastic as himself, but to his amazement he has learnt that this is not the case. In fact, he has even considered violence against the next prospective member who asks how it's all worked out and who gets what!

Back in 1994 when I started H&G I had actually anticipated an apathetic response, and, being perfectly honest, I did not think that the club would get off the ground. Not one of my friends had any interest in the Stock Market or the financial world beforehand and it was really a great surprise that 13 of the 14 people I contacted decided to go for it. H&G thereafter built itself a bit of a reputation and spawning the other family clubs has been a doddle. In fact I could probably start another club purely using the waiting list for the existing ones!

This got me to thinking about how one could present the concept of an investment club in the extremely preliminary stages in such a way so as to highlight the major benefits of membership to all prospectives.

The Maths bit

So, to start off, make sure you get a copy of the ProShare manual and also that you understand how a club works yourself before you present the idea to others. I can more or less guarantee the first question will be "How does it work, then?" and if you can't answer them then you WILL be greeted with apathy. The actual Unit Valuation System is a crucial area here, and is very, very simple to understand. Once grasped, the concept can be just as easily explained and you don't need to be Einstein to do it. A club works exactly the same as a Unit Trust, only with no Wise Fund Managers to pay.

Spreading the Risk

Forget the actual figures, stockmarket investment carries a degree of risk, and some people are uncomfortable with this. Fair enough, but a major benefit of club membership is that all risks are shared between the members of the club. This limits the downside massively and highlighting this point should convince most people that it is an investment club and not a gambling club.

A chance for a Beer or 4...

Club meetings can be held pretty much anywhere, but most clubs meet in the local pub. This really is an ideal setting, especially if the pub a) has a separate area where you can meet, and b) is in walking distance. Okay, it's probably not a great idea to get completely plastered (after all, you are talking about money) but a few drinks and a discussion with like-minded individuals makes for a very good evening. There are some members in my clubs that are only interested in the social side. But even if you don't meet in a pub, you can still have a good time. Alcohol is not mandatory.

The Education

Major, major, major benefit. The Stock Market Ocean is a big place and can seem daunting to the novice investor. However, with a group of you, all hopefully learning at the same pace, this ocean is not nearly so scary. What's that saying, safety in numbers? Also, the chances are that, unless you all work together, the membership is made up from people with different trades, jobs and careers. Between you all there is a wealth of knowledge, even if you don't recognise it yet. I promise you that it will develop and manifest itself within the group. This is one of the main reasons why I believe that Investment Clubs are fantastic for the novice investor.

Money

This is the clincher, the trump card, call it what you will. There are very, very, very few people who can say they have no interest in money. Obviously there are no guarantees, but with a diversified balanced portfolio held over a fair period of time (say a minimum of 5 years) then the chances are that each member will come out with more than they put in, and also that the club's investment performance will have beaten the bank. It is a combination of these last two factors that have resulted in 75% of the novice members going on to become active private investors themselves.

Other Clubs

There are plenty of details about how other clubs are doing available on the 'Net. Just check out the archives for this series, for instance, to find out about H&G, The Brass Monkeys and the Dirty Harrys. Shares magazine carries a weekly feature called "Club Culture" which focuses on a different club. For those with digital TV, The Money Channel has a section on Investment Clubs daily in their "Buy, Sell or Hold" programme. ProShare can supply several case studies on existing successful Clubs. Prospective members may seem keener if they can see an established formula that can be followed. The sources are plentiful and easy to find.

If the prospective members still cannot get excited having been presented with all the above benefits then maybe you are talking to the wrong people. But with a little bit of planning and photocopying, you could be laying the foundations for a highly successful and enjoyable venture which could also be used as a long-term savings vehicle. Good luck!

Related Links

• Investment Clubs discussion board
• The Fool's Guide to Investment Clubs
• Fool Books -- The Fool's Guide to Investment Clubs

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