Club members relax over a couple of pints and an investment portfolio

At first it seems an unlikely scenario: sandwiches, sausages, a few pints of beer and some seriously considered investment decisions…

At first it seems an unlikely scenario: sandwiches, sausages, a few pints of beer and some seriously considered investment decisions. The mba.ie investment club, which meets once a month in a Dublin pub, is one of nearly 40 officially registered clubs operating in the Republic.

The investment club concept travelled to these shores via the US and Britain and is catching on quickly, particularly with people in their 30s and 40s. Investment clubs are usually formed as a way to learn about and invest in the stock market while having fun.

Two organisations promoting and assisting investment clubs, ProShare and The Investment Club Network (TICN) report that they have 25 and 13 clubs operating here respectively. The inclusion of unofficial clubs may push this number up to 70 in Ireland. Membership numbers usually range from six to 25 individuals per club.

The mba.ie club's 20 members are connected to one another through Dublin City University. Most are in the Executive MBA class of 1999, while others are lecturers in the business school or previously graduated from the university. Each member contributes £200 (€254) to start and then £50 a month thereafter and has a say in how the pooled funds are invested. The club is in its infancy and after just two meetings it is still concerned with the essential administrative tasks necessary to ensure it runs smoothly and transparently.

READ MORE

Although the purpose of the club is purely social and educational, it is run in a very organised manner. At the second meeting, club treasurer (performance monitoring), Ms Denise Doran, chairs the proceedings with a typed agenda in her hand. A Dell Computers employee, Ms Doran was the one who originally proposed the idea to people within the MBA class.

"I always had an interest in the stock market but no knowledge and this seemed like a good way to keep in touch with the group," she said. A number in the group agreed to form a club and then asked some friends to join as well.

Ms Doran ordered a copy of the ProShare manual, a do-it-yourself investment club guide produced by an independent not-for-profit organisation funded by the London Stock Exchange and industry groups. The £25 sterling (€38) manual includes the necessary legal and accounting paper work to start a club.

Gathering round several pint and food-laden tables in the Whiskey Corner pub in Smithfield recently, the mba.ie club reports its findings since the last monthly meeting. The main concerns are online banking options, broker costs and whether members may purchase varying or equal amounts of stocks in unit blocks.

Fingal County Council's Mr Donal Minnock from the MBA class suggests that from his research NCB stockbrokers seems to be an investment club specialist but there might be a minimum limit on what may be invested. Broker FEXCO and Internet companies SureTrade and E*Trade are also mentioned as possibilities. Each firm has varying minimum investments or deposit amounts.

On the administrative side, necessary subjects include articles of association, tax implications, the club name and industries/stocks to investigate for the next meeting. Copies of newspaper articles and website printouts are distributed as reference materials. The ProShare manual makes the rounds as members chat amicably about various issues on the agenda.

Tax implications raise an interesting debate on how to organise the club. The pros and cons of setting it up as a club, company limited by guarantee, or in another form will be explored by the club's accountant members and reported at the next meeting.

The big question on everyone's mind is how to choose stocks. It is agreed that since the whole idea of the club is to learn, they'll initially explore all the sectors. Sectors are determined by the breakdown on a Goodbody Stockbroker webpage: banking/financial services, construction industry, information technology, food and agribusiness, telecommunications, media, pharmaceuticals, transport and tourism, paper, print and packaging, resource exploration and production. Everyone chooses a sector to research for the next meeting.

It is suggested that report headings should be formalised into different headings including the general environment in the industry and a breakdown of some specific industry stocks. Even though they can't trade until the club bank account is set up, most members of the group think AIB represents a good buy at the moment.

Employee key account manager for courier company TNT, Mr Liam Brennan, is not so sure: "I don't think we should buy anything until the end of October when we know what [US Federal Reserve chairman, Alan] Greenspan's thinking. Then we can buy them cheap."

Another member proposes using one-third of the future pooled fund to buy the stock. A decision on AIB is deferred until the next meeting when they'll hear a report on the banking sector.

After wrapping up some other details, the club members order a few more pints and catch up with one another or head home. Between meetings the members stay in touch by e-mail.

Soon after the meeting some members reflect on what they hope to get out of the club. "There's a lot to be learned and it's a very efficient way to pick up a bit of information. Assuming it all goes to plan at the next meeting, we'll have a synopsis of the various industries," said general manager at airline services company Chapman Freeborn, Mr Joe Reid.

Although MBA class members studied portfolio theory, they never discussed the actual practice of building a portfolio. "For every stock, you've got to assess the potential risk and return. The challenge in the club is the practice of building it and to see how it will do," says Mr Reid.

One member, a groups sales manager at TV3, Mr Ronan Redmond, says as a result of the regular meetings he's reading more newspaper articles and books on investing. "I'm buying the fool's guide to investing in the stock market. I have no exposure in this area and in fairness to the others, I want to get myself up to speed."

Mr Brennan has invested in the past without much success. He thinks the club is more structured and offers a chance to have a crack at the market as well as the craic of the group.

"No one is going to be a millionaire. It's like gambling, you're watching your horse but he keeps running. He can be down but he gets up again. You monitor the stocks each day," he says.

Investment clubs are used for a smaller scale of investment than when people are investing on their own says Mr Brennan. "It's like buying the leg of a horse rather than the whole horse."

Although the club is still in the early stages, members have advice for others hoping to set up clubs. "It's very much in the embryonic stages. It should go for a minimum of two or three years otherwise there's no point in setting it up. I'd say to anyone not interested in sticking in there for two years minimum that it's not worth your while," says Mr Reid. Most members believe you're probably better off forming a club with people you know. "You are handing over an amount of money, and it requires a certain amount of trust. You're also allowing your money to be moved on the advice of these people," says Mr Redmond.

Hot Tips for Investment Club Members

Make sure you have your finances - pension, expensive debts, health insurance, life insurance - in order before investing. Think of it as gambling with money you can absolutely, positively afford to lose.

Never, ever have the funds in the name of one member. If the person dies the funds become part of their estate. To legally protect the rights of all members, the funds should be held in a brokerage or bank account under the club name. At least three people should be required to sign for any transactions or withdrawals. A copy of all members names and contact details should be provided to the bank or broker along with the articles of association of the club.

Make sure everyone has a say in how the money is invested and vote for the final decision democratically. It's not really a club if only one person is making all the decisions.

Remember that it is extremely inexpensive to set up an investment club. For £25 sterling the Proshare Investment Manual has much of the financial and legal documentation you need. For tax information and options, contact the Revenue Commissioners.

There are many books which specify ways to set up such a club. However, they may not be Ireland-specific and some independent research may be required. The Irish Stock Exchange should have investment club information available in the autumn.