Investment clubs: sharing shares
May 3, 2011 | By:

If you’d like to play the stock market but think your capital is too low, an investment club may be the answer. Sheila Prophet explains

New_York_Stock_Exchange_trading_1963. Wikimedia Commons

It’s a brave man who plays the market on his own. Photo of NYSE, 1963, from Wikimedia Commons

If you are harbouring ambitions to play the stock market but don’t have the courage or the expertise to go it alone, why not gather some like-minded folk and set up an investment club? This might sound like serious business, but a typical club begins with a handful of members meeting up once a month to compare notes and profits over a pint in the local pub, or round the dinner table at each other’s homes.

“Investment clubs are usually made up of work colleagues or friends,” says Ian Benning of The Share Centre. “Investors need to be able to trust the other members of their club, which makes it very rare for strangers to come together.”

Why do people start clubs? Proshare Clubs, an organisation set up 20 years ago to encourage and support investors, says some of the main reasons are:

  • Low risk: pooling a relatively small amount of money with others each month is an ideal way to gain hands-on experience of the stock market
  • Spreading the load: research into potential investments can be structured and shared among members
  • Profit opportunities: surveys show collective investment decisions based on discussion and democratic choice are more likely to produce sustained gains

Though meetings are usually informal, there are rules for investment clubs set out by HM Revenue and Customs. There must be no more than 20 members, and the club must have a constitution and rules. An appointed member, usually the treasurer, must keep a record of the club’s dealing and apportion gains and losses between the members.

When setting up a club, members each pay in a lump sum, typically around £100 to £500, and then agree to pay a regular sum each month, usually £25 to £50. Proshare Clubs advises that investments should be made in chunks of no less than £500, because of stockbrokers’ minimum charges. This means some clubs will only make an investment every two or three months, but the time in between can used for research and perhaps for running a fantasy portfolio.

Even if you are new to the stock market, you may already know more than you think. Ian says: “Clubs should make use of their members’ expertise. Past jobs, current interests and business experience can all play a part. Even regular visits to the high street can help identify stores that look to be doing well.”

Investment clubs have existed since the late Fifties, and though many have come and gone, some, such as the Friday club in Lincoln, have been going strong since the Eighties. Others, including the Mobius in Yorkshire and the Crewe-based Rolling Stocks, have continued since the Nineties and today have websites packed with useful information for newcomers.

The internet is of course one of the main reasons for the popularity of investment clubs, despite the financial upheavals of the century so far. There is a vast amount of easy-to-access free information available at Proshare Clubs and The Share Centre.

HM Revenue and Customs has a guide to setting up a share club and another great resource is Time to Trade, which organises events such as the National Investment Club Conference (5 November 2011 at London’s Queen Elizabeth Hall) and provides a free manual for new clubs and a variety of management tools and software.

Dary McGovern, managing director of Sensatus, the developers behind Time to Trade, says: “We wanted a solution that all club members could access, which would support UK and foreign investments and a variety of investment strategies such as long, short and option positions. There was no such software available, so we decided to develop it ourselves.” That’s the spirit!