Is The Investment Club Is Making a Comeback?
Social investment clubs were a ‘thing’ of the nineties stock market boom times as the dotcom bubble happily inflated and took amateur investment enthusiasts along for the ride. While the ratio between ‘investment’ and ‘social’ focus varied significantly from club to club, the general idea tended to roughly be the same. Members would pay in a monthly contribution, which would either be flat or tied to the individual’s preference or means, and the club would invest together in consensus stock picks. Profits, or losses, were shared relative to capital invested into the pooled fund.
At investment club meetings, members would take time to present their own suggestions for companies that the club would invest in. This process reflected the meeting rooms of a professional fund manager. Clubs would also have their wider investment strategy, something like a constitution, that individual stock picks would have to take into consideration. For example, no more than x percent of overall capital allocated to one holding, once gains or losses hit a certain level there is a club vote on whether to stay in the position or exit it, or an automatic exit, no tobacco companies etc.
Meetings would probably be monthly and probably held in a local pub, or member’s home, and drinks might well lubricate the process. While investment returns were of course the goal, the foundation of most investment clubs was certainly built around the social aspect. The group dynamic and club rules also meant that individual investors would generally be protected from over enthusiasm leading to over exposure on any individual holding and the danger of heavy losses if things went south.
We’ve spoken in the past tense up until now but investment clubs again appear to be on the rise. The bursting of the dotcom bubble and then the crash of 2007 devastated the numbers of investment clubs but a few thousand held strong. There are some investment clubs in the UK that have existed for over 25 years. Online stock broker The Share Centre has long supported investment clubs by supporting specialist accounts for them. The company’s chief executive Richard Stone has recently commented on a 2018 boom in investment club membership and new clubs being set up, stating:
“It appears there is an ever-increasing appetite to be part of an investment club”.
One major drawback, however, is that when investing through a club structure shares cannot be held in an ISA or SIPP so don’t benefit from the tax shelter these wrappers provide. However, some investment club members also have their own personal ISA or SIPP portfolio that is either influenced by or mirrors their investment club’s holdings.
Investment clubs are also a great way for beginners to start investing as they can learn and be guided by more experienced members while they get to grips with the logic behind investment decisions by listening to debates around stock picks. For those interested in potentially joining an investment club, the best option would be to be referred through friends or family to an existing club open to new members. Some also actively encourage new members who live nearby and have Facebook groups or websites that can be found. Or, you could always start your own with friends and family keen to dabble in the stock market, mixed with a monthly evening at the pub!
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.