Making money never goes out of fashion and although enthusiasm for themarket has waned there is still a healthy interest in investment clubs, writes Áine Flynn.
Although many market professionals have shied away from the bull and the bear in recent times, opting instead for safer investment opportunities, some small investors still see the stock market as a way of making money without taking on big financial risk.
Mr Owen O'Malley, business development officer with The Investment Club Network's (TICN) Irish branch based in Donegal, says interest by new and existing members remains strong now comprising more than 200 clubs and 5,000 members worldwide.
In a two-year period that has seen the value of global stock market's fall significantly, this continued success seems inexplicable. Mr O'Malley attributes it to the education programmes that the network runs. He describes it as an alternative to "a five-year degree" or an "incubator period" where participants get a crash course in what to look for and avoid in stocks and shares.
Mr O'Malley explains that only in the last few weeks five franchises of the organisation have been established across the State to meet the demand in each geographical area. Mr Kevin Flynn has taken over one such franchise in Leinster. After eight years involvement with investment clubs, he is confident that his new role in the network will be a complete success.
"When I attended a TICN seminar I was really impressed and realised that their methods were far ahead of the way I was used to," Mr Flynn says. "Now I look forward to using this method to introduce people to the concept."
The network teaches the stock system but does not act as a financial adviser.
Initially a group of interested friends, relatives, colleagues or acquaintances come together to attend a presentation hosted by the TICN. The group can then set up a club straight away if it wishes, which typically comprises 19 members who each invest €80 to €100 per month, with one other member acting as an associate and mentor of the club.
Collectively therefore a club might pool about €1,900 when it meets each month, which it then invests via the internet. Mr O'Malley outlines that this has the benefit of eliminating middlemen costs associated with buying and selling shares with a conventional broker over the phone.
Over the first 18 months or so TICN runs an educational programme consisting of 12 separate modules, which are provided using funds from the members monthly investment. Everyone is advised to attend these learning events or participate in similar weekend seminars within six months of joining a club.
The medium-term goal set down by the network is for each club to make €1 million within five years. In the long term Mr O'Malley is hopeful that, "the investment club will be like the bank and generations will flow through it". Also TICN hopes that when participants observe their club's portfolio of shares doing well, it will give them the courage, confidence and skills to trade successfully as lone investors.
Mr William Carey who works in the financial services industry and is part of an investment club in a personal capacity, believes that anyone getting involved in an investment club now is "going in at the right time".
With the present volatility in the market, Mr Carey would not advise anyone to shy away but to pick and choose stocks more carefully. "Target companies that will improve in time," he says. "Focus investment on the company's that have strong balance sheets.
"Although the selection of stocks is not as dynamic as they used to be, it is still a good way to learn the ropes of the stock market," Mr Carey adds. "And to set up data and a base of knowledge."
Despite such optimism however, overall investment club activity has slowed. A large number of UK and Irish club websites remain dormant. One UK based club - Jive Investment - published a message on its website in October 2002 indicating that club activities would be suspended for six months, due to "a dismal run on the stockmarket", which saw some stocks lose more than 50 per cent of their value.
A private client dealer with Goodbody stockbrokers, Ms Anne O'Hanlon says market conditions are contributing to the nervousness of individuals involved in investment clubs. "Since the downturn, people have been moving away from the concept of investment clubs," she says.
Before the attacks on the World Trade Centre and current market volatility, Ms O'Hanlon says there was significantly more activity in investment club accounts. "It was seen as a good way to gain knowledge of the stock market and equate brokers fees among a group of people," she says. Ms O'Hanlon suggests that increased speculation on the stock market via a "club" or otherwise was precipitated by the Eircom flotation when "markets were strong and had something to offer the small investor". But confidence declined as markets fell.
A financial adviser based in Galway is embarrassed to admit that he experienced the negativity of a weak market when his investment club became a loss-making venture. Although losses incurred were not substantial - the equivalent of €70 each - everyone began to get bored and lose interest when it became a loss-making enterprise. "It went belly up when markets were not going very well," he says.
For the financial adviser it was a casual affair conducted over a pint each month in the local pub. "It was as much to do with the social event as anything else," he says. "But I know of groups where serious losses were made in the period where technology shares lost their value."
Looking back, however he appreciates that his experience was a learning curve, which he can use to good effect during the next boom period. "I won't get caught in the hype of investment clubs but will know what to look for and make a fortune," he adds.
Members of investment clubs can feel secure with the safety in numbers syndrome and safe in the knowledge that no matter what level of success is experienced they will walk away with at least the basic know-how to speculate in their own right at some future date.
