Volatility has been the recent watchword on the markets. I don't know about anyone else, but during some of these "down" days, I just wish I was somewhere else; preferably in another time!

But as Investment Clubbers, are we downhearted? Not on your nellie, because we have an incredible advantage over most private investors, in that we are drip feeding our money into our club on a monthly basis. So, when the market is low, the unit value is low, and we get more units for our money. A recent article called "Buying on the dips" illustrates this point in detail, so I won't go over it again here.

This type of investing, however, lends itself to other problems and pitfalls. One of these, which will form the bones of this piece, has been acutely highlighted in the TMF Staff Investment Club recently, with the resignation of TMFEssex as Club Chairman over what essentially amounted to differences in basic investment policy. This is well documented on the TMF Staff Investment Club board and also in the Club minutes.

Now I commented on the boards that Rob had resigned because he felt uncomfortable in being forced to invest in companies he would not normally invest in. His reply was thus:

"No it wasn't that so much as the realisation that my investment philosophy was so far adrift from that of the club that it was only going to be a source of tension. Better that 20 people agree than for 1 person to try and persuade 19 to change their minds."

Now this article is not in any way intended to criticise TMFEssex, or anyone else for that matter. I know Rob and a thoroughly nice chap he is too. However, it did get me to thinking, because I am always sad when someone feels they have to leave an investment club. You see, I firmly believe it just should not happen (at least not for this sort of reason).

Now I may well be slated and dragged across the coals screaming for this, but (here goes)... Investment Clubs are not all that Foolish.

Gasp! Shock, horror, what is he saying?

Well, when I say not Foolish, I mean not in the "Long term buy and hold" sense. Why? Well, simply because a club will have a life, and that life is inevitably going to be shorter that any individual's investing life.

Why? Because members of investment clubs are usually a mixture of ages, and there will come a time, after 5/10 years, whatever, when the members are going to want some money back. Just like any savings plan, really. You need to see the return at some point. This poses a problem for lots of clubs, especially those that do have a limited life. The Brass Monkeys, for instance, is due to wind up in 2 years' time. Now what is the point of using LTB&H techniques for the remainder of the term? We are now looking at medium term investment strategies, and no doubt in a year's time we will be learning all about short term and momentum investment (and no doubt all the related risks too!).

Why? Simply because unless you buy and sell reasonably frequently at club meetings members learn little and lose interest. All the research in the world is useless unless it is put into practice.

This perfectly illustrates the number one benefit (for me at least) of Club membership: EDUCATION. What members have collectively learnt in the club they have put into practice privately and are now private investors themselves. And as can be seen, you learn about the whole range of investment philosophies, not just the one that you personally follow.

The second most important benefit of being in the Club is the SOCIAL element (see my previous article "Keeping it Social"). It matters not one iota how much money the club is making -- or not making. If the meetings are boring then members will not attend. It is that simple. You have to retain a sense of fun or the whole thing will collapse.

MAKING MONEY actually comes after the first two in importance for me. If I want to seriously invest (which I do) this comes outside of the Club environment. That is not to say we want to invest irresponsibly or unethically, but one of the main benefits of Club membership is that the risks are shared. I can see nothing wrong at all in a Club spending a throwaway amount on a penny stock or two, simply because the members individually probably wouldn't do it themselves. Okay, don't make it a massive part of the portfolio, and get some proper investments first, but the odd £250 in a foreign mining company does no harm and helps keep a sense of balance, as well as giving a bit of an adrenalin rush if it does fly. H&G for instance made Pan Andean Resources (LSE: PRE), a Bolivian mining company based in Ireland that doesn't even own as much as a screwdriver, its first "Boom or Bust" stock. We bought at 17.5p. They were in partnership with BHP, who were drilling a block in Bolivia, and the signs were good. The price went up to £1.40. (We sold enough to get our stake back at 60p by the way). The well was dry and the price crashed back to 40p. Nothing happened for 3 years-plus and the price dropped as low as 5p. Then they got enough money to fund 2 drills and are currently about to start the first of these any day now. The price is 55p-odd. No I am not recommending buying this stock, or any other penny share. But with apologies to TMFPyad, this is a fantastic value investment. It cost each member £12.50 to start with, which has now been repaid. We hold the stock 5 years on and are on the next rise on the rollercoaster. If it goes bust, so what? We could lose a maximum of £12.50 each. Big deal. Where can you get better "value" than that?

What I am trying to illustrate is that there is plenty of room in a Club portfolio for all types and styles of investment. You can agree to have so much in safe stocks, so much in value plays, so much in smallcaps, so much in speculative, etc. etc. Everyone can be happy and everyone can learn from everybody else.

Now that's Foolish.

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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