When picking stocks, or choosing funds, do you make better investment decisions by going it alone – or in a group format, where investing ideas are put to the crowd?
Investment clubs are big believers in the latter: a group of investors can be more successful than a single investor, but there is disagreement in the ranks over the manner in which this is achieved.
Investment clubs fall into two distinct categories. The first is purely an educational model that engages guest speakers to cover a range of financial topics. The second is one in which members contribute funds to a joint pool which is then invested into stocks or managed funds that are selected at regular meetings.
The Australian Shareholders Association advises against the latter because most are run as partnerships and when members pull out or personality clashes arise a restructuring of the partnership is necessary.
Alan Hull, author of Active Investing and founder of the Sunday Traders Clubs, which operate in Melbourne, Sydney, Brisbane and Perth, warns member against pooling money: “My considered opinion is that I can’t think of anything more stupid”.
“By pooling funds all you’re doing is creating a very small business with countless partners,” hes says. “The Golden Rule of business is don’t have partners unless you absolutely have to. If you want to use a club as a learning model do so without money.”
But proving that when run as a tight ship share investment clubs that function as a partnership can work well, Brisbane-based LIPS (Ladies Investment Portfolio Syndicate) is still going after 11 years.
Founded by Kerrie Brown, LIPS has a strict business code, which flies in the face of wine and dine affairs at other clubs that Brown claims she has visited. “I’m not averse to having a glass of wine but when you’re discussing money you need to remain focused,” she insists.
Brown has not lost any of the passion that fueled the formation of LIPS and she is now mentoring a second club.
The mother of three and one time teacher formed LIPS with a group of 14 other women in 1995 after witnessing a friend go through an ugly divorce and end up with nothing. “Initially we had around 25 members but when it came to putting up the money a number of husbands refused to let their wives be a party to it,” she chuckles.
Today the group has eight members, over $140,000 in invested funds and achieves an annualised return of approximately 14.5%.
It’s an impressive nest egg but as Brown notes, the greatest benefit from the club can be seen in the members’ very healthy individual portfolios. “Joining a share investment club is not about making a lot of money jointly. It’s about learning about the share market so you can invest in your own right,” she says.
LIPS has factored into its agreement, in which everyone is individually and severally responsible for any debt incurred, that the partnership will never borrow a cent. This means that it therefore has no liability.
Another all-women club, DICLESS, (Dandelions Investment Company for Long-term Equity Strategies Share trading Pty Ltd) opted to become a company because all its members have different asset bases. “Our motivation was primarily not to expose ourselves financially through a partnership,” says founding member, Tina Lissette.
Formed in 2000, DICLESS has a portfolio valued at $85,000 and eleven members who kick in $50 per month.
Hull established the first Sunday Traders Club in Melbourne in 1999 after cautioning his share trading students about the dangers of online networking. “I was telling them that share trading is an isolating activity and how easy it is to get caught up in wrong thinking unless objectivity is maintained by talking to others. But I warned them that networking online has serious pitfalls,” he says. “They turned on me and said, so what do we do? The next thing I knew I had agreed to start a trading club.”
Sunday Traders Clubs, which attract up to 150 attendees, are not-for-profit and charge a nominal entry fee that covers the speaker and in some cases, bottomless cups of coffee.
Convener of the Sydney Sunday Traders Club, Robert Kreft, receives so many requests from speakers he is booked out a year in advance. Asked why people continue to participate regularly six years down the track Kreft says, “trading is a journey of self stgelopment and learning”.
“You do all these expensive courses and come out at the end with no support. It’s important to be able to bounce things off others.”