Thousands of people up and down the country have organised themselves into investment clubs as a way of buying shares on the stock market.

It is a good way to learn how the stock market works and by pooling their money individual investors don’t have to commit more than a small sum each month so they are not risking a fortune.

The hurdles to starting up

Many people fear they do not know enough about shares to make sensible decisions. They also worry that the task of running a club, keeping the books and accounting for all the money might be beyond them.

Fortunately help is at hand. ProShare Investment Clubs is an organisation that exists specifically to assist those wishing to form such clubs. It can provide software and templates to smooth the path for club secretaries and treasurers.

In the same way, Digital Look, the financial information company, is on hand to offer research and investment tools. ProShare Investment Clubs says that, very often, clubs find they have more expertise within their ranks than they realised.

Setting up your club

Those interested in establishing a club will need to hold a meeting to gauge whether there is enough enthusiasm for the project to be carried forward. Some investment clubs are made up wholly or largely of people from one occupation, such as teachers or airline pilots. ProShare suggests it is better to have a range of expertise, so that the club members have expert knowledge of more than one subject.

There will need to be an election of office holders, usually including a chairman, a secretary and a treasurer. The first would normally chair the meetings, the second would deal with correspondence and records of meetings, while the third would look after the money and keep accounts.

Once the club is set up members should be able to select shares to buy and sell at their regular meetings. They will need to enlist the services of a stockbroker and here again ProShare can help. Its website has a link to APCIMS (The Association of Private Client Investment Managers and Stockbrokers) which holds details of more than 250 broking firms that deal in stocks and shares for private investors.

Groups can also register on the ProShare Investment Clubs website, where their names will be added to hundreds of others from all over the country. All they have to do is enter their club’s name and number of members. Once registered and logged in, they will be given their own home page and be able to enter details of their portfolio.

Regular club meetings

These are the occasions when club members can select shares to buy or sell. It is also the time when members can examine whether the club is continuing to meet its original objectives.

For example, in the very tough conditions of the past year some investment clubs have put up the shutters, buying few if any shares, prompting some people to question whether an investment club should continue in existence if it is not doing any investing.

A ProShare spokeswoman says the key to a successful meeting is the chairman, who needs to make sure all members have a chance to have their say, while gently dissuading the more talkative from hogging the floor.

It is advisable to insist that no share can be bought without at least one person, often the proposer of the share, putting forward some research on the company’s background, followed by a proper debate, with a vote. As ProShare says: "If you buy a share on nothing more than a nod-nod, wink-wink, it will all end in tears.” A similar process should be applied to sell recommendations.

The nuts and bolts

Members should ensure they keep a record of each meeting, noting clearly any investment decisions made. They should also maintain an up to date record of the investment performance of their shares, both individually and as an overall portfolio. ProShare has software applications which enable clubs to create a detailed spreadsheet.

The problems of a bear market

Most investment clubs thrive in a bull market but can come unstuck in a bear market. It is never pleasant when shares start showing a loss rather than a profit and this can make some investment club members lose heart, as indicated above.

The advice from ProShare is to follow the example of Corporal Jones, in Dad’s Army - don’t panic. They should try to take a long term view and remember that historically markets have always recovered over time.

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