Set up a club to invest in shares

If the stock market seems impenetrable, joining forces can be the way in, says Dr Kevin Brown.

If you are sociable, enjoy games of skill and have a little cash to gamble with, setting up a shares club with friends of colleagues could be for you. Shares clubs are also a great way for novice investors to learn about the stock market.

I picked up the idea in the 1990s from Mrs Thatcher and her share-owning democracy. This decade saw many building societies and insurance companies abandon their mutual status in favour of stock market flotation.

It was 1999 when I floated the shares club concept to three friends, we were in the bar after a round of golf. One of them is also a GP and the two of us looked for more interest at our respective practices. A date was set for an exploratory meeting and eight people turned up.

Pebble Ridge Investment Club - named after the view from the clubhouse bar window - is still going strong.

We have not made a fortune, but we have hung on to our shirts and had fun.

SETTING UP A CLUB 
  • Write a constitution and appoint officers: chairman, treasurer, secretary, social secretary (optional).
  • Open a bank or building society account in the club's name.
  • Find a share-dealing service or stockbroker to buy and sell shares.
  • Buy a suitable accounting software package.
  • Decide the maximum and minimum sum each member needs to contribute on a regular basis.
  • Legal obligations include having no more than 20 members; holding annual general meetings; produce annual, audited accounts; and submitting a tax return each year.
  • Advice is available from Proshare: visit www.proshareclubs.co.uk

Help and advice
We received invaluable guidance from Proshare, a membership organisation for investment clubs, on how to proceed including the legalities and practicalities.

We needed to write a constitution, elect officers and find a financial software package to keep track of the size and value of each member's shareholdings. We also needed a stockbroker to buy and sell on our behalf.

Legally, shares clubs can have a maximum of 20 members, must hold an annual general meeting, produce audited annual accounts and submit an annual tax return.

We contacted other clubs via the internet. Some were happy to let us to plagiarise their constitutions. A month after our first meeting - and once again in the golf club bar - we stole some bits and amended others until we had a constitution we liked. Acquaintances in the bar asked what we were up to and decided they wanted to join too. Suddenly membership had nearly doubled.

A chairman, treasurer, social secretary and secretary were appointed.

Each member put up a £100 deposit and we decided that members could contribute a maximum £50 a month in £25 units. There is also a £5 a head monthly social contribution.

Opening a building society account in the club's name into which members pay by standing order helped to ensure commitment. By our third meeting, there was money in the account, the treasurer had paid our Proshare membership and had bought a software package.

From the start, the members have delighted in dividing into various factions: the cautious, the risk-takers, the tobacco/ armaments company supporters and the ethical/green lobby. Half are optimists, half pessimists. One member clearly believes there is gold at the end of the rainbow.

By month four we were ready to buy some shares but we had neither a consensus nor any useful insights about which companies' shares might go up or down.

Discussions were held on the club philosophy (still ongoing in 2007) and at our fifth meeting in December 1999, the risk-adverse members - those favouring only the FTSE 100's top 10 companies - were outvoted by the adventurous.

Our first shares were in a high-street electronic games retailer. Soon after, share prices worldwide dived precipitously. Over the years since, we have been struck by how the club's purchases seem to have a deleterious impact on world markets in general and FTSE 100 share prices in particular.

Gaining knowledge
The second company we invested in reverted to private ownership following a management buy-out almost as soon as we bought into it.

Subsequent acquisitions in the dot.com sector caused bubbles to burst all around us. Since then we have become a little bit more knowledgeable.

We have discovered there are crooks out there ready to steal our money - and that financial markets are driven by sentiment, not logic.

Our monthly two-hour meetings consist of a chairman's and treasurer's report followed by members' suggestions for what to buy next. Someone invariably mentions some trendy no-hoper that the rest of us have never heard of and we buy in spades.

The taxman requires an annual return from our treasurer but because we made a loss in the first few years, this has not been a problem so far.

Experience or luck is slowly impacting on our decision making. We hope to end this year with our shares worth a third more than the amount we have invested. The club now has 20 members including five GPs, practice nurses and managers, a counsellor, a hospital consultant, teachers, accountants, a computer salesman, a farmer and a chef.

Not all of us get to every meeting, but an annual dinner brings together the entire membership plus partners. The best bit is that any losses we make are only 5 per cent mine.

- Dr Kevin Brown is a GP in Devon

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