by Terry Bond
An investment expert who has helped hundreds of investment clubs get off the ground explains how friends and colleagues can beat the City by joining forces.
When it comes to investment many heads are often better than one.
In the last six years 12,000 investment clubs have started in Britain.
With an average membership of around a dozen, that's 144,000 people who enjoy getting together, pooling their money with friends and investing in the stockmarket.
So what is the big idea?
There are several reasons why people chose to join a club instead of go it alone and invest on their own.
Investing can be a confusing business. Examining the 1,800 or more shares that trade on the London Stock Exchange is no simple task. Far better to do it with a little help from your friends.
By joining forces with people from different backgrounds investment club members find that their knowledge base expands dramatically.
Investing can be a lonely business. If you are able to talk about the changes in a share price with friends, whose opinions you know and respect, you will make considered rather than a knee-jerk judgments.
If you are to maximize profits it is vital that you keep in touch with what is happening to your shares and this can prove difficult if several holdings are involved. Spreading the monitoring responsibility among club members relieves the burden.
You 'must' make sure at the start that you choose the right friends to join you - people who have a genuine interest in learning about the stockmarket and who are willing to attend the meetings and contribute their opinions.
Those who say they are happy to pay the monthly subscription but are too busy to turn up at meetings or play their part in researching and monitoring shares are no use to you.
Another 'must' is to agree a definite investing policy from the outset.
Put simply, this is an agreement amongst club members to sell a share if it loses a certain percentage of its initial value.
In addition, it is important to agree a monthly financial contribution to be made by each club member which is then invested.
It is vital to ensure that the monthly contribution does not stretch members too much - after all people should not be investing money in the stockmarket that they can not afford to lose.
Setting the monthly contribution level too high is a sure fire way to drive members away.
Even the best organized clubs will occasionally pick a share that fails to perform and which loses money. When this happens it must be an aggravation, not a disaster.
There is no doubt that many investors who join a club become more adept at selecting successful shares but they should never regard the club as more than a forum to discuss investment techniques and have a harmless flutter, a lot of banter, and a fun evening out with friends.
But all this has to come with a word or two of warning.
Of course, starting an investment club does not guarantee share-owning success.
In the last few years making money on the stockmarket has been very difficult and investment club members have suffered along with individual investors.
The views expressed are solely those of Mr Bond and are for general information only. They do not constitute financial advice as defined by the Financial Services and Markets Act and are not intended to be relied on for the purposes of making an investment decision. Always obtain independent advice from a qualified, registered financial adviser before making any investment decisions.