Volatile stock markets test the nerve of small private investors and the Upton St Leonards investment club is no exception.

Times Money has been following the fortunes of this group of share investors, who live near Gloucester. At their last meeting they debated whether it made sense to continue putting money into a falling stock market. Stewart Atkinson, the club chairman, says: “In the end we decided that though these are difficult times there are buying opportunities and we ought to continue investing.”

Over the past couple of months the club has bought five new shares and been obliged to sell two. The new purchases were Speedy Hire, Cadbury Schweppes, Keller, Marks & Spencer and Prudential.

SpeedyHire, which supplies building equipment, was chosen because the club members felt that the stock had been marked down too heavily during the recent slump for shares in the construction sector. However, it had little chance to prove their theory because, within a month, it was caught by the club's stop-loss rule, which means that a share must be sold if it falls more than 12.5 per cent below its highest price.

The club had more joy with some of its other new purchases. Cadbury Schweppes, the chocolate and soft drinks manufacturer, was chosen in the hope that there will be a restructuring of the company that will boost the share price.

Marks & Spencer was bought largely because club members are impressed by its recovery, so far, and have faith in Sir Stuart Rose, the chief executive, to continue the good results from the high street retailer.

Keller is a global contractor specialising in foundations for high-rise buildings. It has work in the US, the UK and a growing presence in the Middle East. Mr Atkinson says: “The company has a solid order book for the next three years.”

The fifth and final purchase was Prudential, the insurer. Mr Atkinson says: “We felt that this is a good blue chip company and the share price did not reflect its potential in a global market. The company is well placed to benefit from strong growth in regions such as Asia.”

Apart from the sale of SpeedyHire, the club also said goodbye to Gyrus Group, one of its best performers. The medical instrumentation manufacturer was taken over in February and shareholders were bought out, netting the investment club a 57 per cent profit on its original purchase price. This has helped the club members to show a profit of more than £500 each (25 per cent) on their original £2,000 investment in March 2004. Mr Atkinson says that the profit was actually £700 (35 per cent), but the members spent £200 each on several nights out for their wives. However, this return, though pretty good, does not match the 58 per cent return on the FTSE 100 index over the same period.

Despite last month's buying spree the club remains cautious overall. In recognition of the tougher market conditions it is keeping more than half of its money in cash for the time being. Mr Atkinson says: “Our current total funds stand at £37,000. Of this, £21,000 - or 58 per cent - is in cash. We are keeping a reasonable sum back so that we don't risk everything in these turbulent markets.”

Expert analysis, Prudential

Like its peers in the insurance industry, Prudential's shares have been hit hard over the past 12 months, mainly because of wider concerns about the overall health of the financial services sector, writes Miles Costello, finance correspondent.

The meltdown in sub-prime American mortgage securities and the international credit crunch have combined to wipe more than 16 per cent off the value of the Pru since the high of last April. Investors fretted that its asset management arm, M&G, was exposed to so-called “toxic” investments.

The share price, which values Britain's second-largest insurer at almost £16 billion, has remained constrained in recent weeks, despite the Pru's management providing detail that showed M&G's exposure was minimal and writedowns were virtually non-existent.

Ironically, after a highly volatile period, the shares are now changing hands for about 675p, only slightly less than March last year, when Mark Tucker, the chief executive, concluded after a year-long review that he would retain the UK division, long seen as a rank underperformer.

Pru bulls would argue that the share price is not reflecting the huge strides made by Mr Tucker to focus on higher-margin UK business, outsource non-core activities and take out excess costs. The Pru boss has concentrated on generating sales growth in the US and in Asia, the booming division that he set up.

Some analysts have suggested that a spin-off, recently ruled out, could easily value the Asian arm at as much as the group's current market capitalisation.

Bears would claim that UK revenues remain lumpy, the US is growing off a small base and that growth in Asia is already showing signs of slowing. The group remains exposed in the UK to the vagaries of nervous savers and - even more of a concern in the current climate - to investors sitting on the sidelines.

But the Pru's management team is looking strong, particularly with the hunt for a new chairman to replace Sir David Clementi well under way. And Mr Tucker has surrounded himself with able executives.

With the 2006 aborted super-merger with Aviva by no means a distant memory, there is always the possibility that a transforming merger may appear.

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