Interest in the stock market from non-professionals is finding an outlet in the number of investment clubs springing up around the country, writes Caroline Madden

Irish investors tend to shy away from the stock market, preferring the relative simplicity and tangibility of bricks and mortar. But with investment clubs spreading rapidly throughout the Republic, inexperienced investors are increasingly overcoming their reservations and venturing into the intimidating world of stocks and shares.

Over the last few years, hundreds of clubs have sprung up around the State. While they all vary slightly, the central tenet is that a group of friends, family members, workmates or acquaintances pool their resources and invest together in the stock market. Clubs can have anything from three to 20 members, and monthly contributions generally vary from €50 to €100 per member.

Investment clubs can be an ideal way for nervous or inexperienced investors to access markets, as members can debate the merits of different investment strategies and bounce ideas off each other, rather than making difficult decisions on their own.

In addition, economies of scale can be achieved by pooling funds together, as transaction costs will be lower and members will have a stake in a larger portfolio of shares than might be possible on their own.

So what is the best way to go about setting up an investment club? The cheapest option is to simply download the Irish Stock Exchange's Guide to Establishing and Running Investment Clubs in Ireland from its website (www.ise.ie) and follow its advice. A comprehensive guide, it covers everything from a six-step approach to setting up an investment club to managing club finances, as well as outlining the legal, tax and record-keeping issues that relate to running such a venture.

However, many uninitiated investors prefer to have some training before they begin dabbling in the markets, even if doing so as part of a club. The two main Irish providers of investment courses are Invest Like The Best (ILTB) and The Investment Club Network (TICN), both of which also provide assistance in setting up investment clubs. The two courses teach very different approaches - and don't come cheap - so the course content should be examined carefully in advance to ensure it matches the aspiring investor's expectations.

TICN is a highly commercialised, franchised network, with 15,000 members worldwide and 300 investment clubs in Ireland. Its 2½ day course costs €1,295 (before discounts) and the emphasis is on teaching people how to pick quality companies that are "rock solid and fundamentally sound", according to chief executive Owen O'Malley, and timing the market through the use of charts.

Significantly, its strategies only apply to investing in the US markets.

The course also teaches people how to use "covered calls" - selling someone an option to buy your shares if they hit a certain price in order to generate a monthly income from their portfolio.

According to one stockbroker, this is an unusual strategy to teach novices as the options market is normally only played by highly experienced professional investors.

Mastering your emotions is the key to success in the stock market, says O'Malley, and this is where being in a club can help.

No matter how much of a basket case you are emotionally, if you're in a club of 20, it dampens down the emotions, he says.

So how do TICN clubs actually perform? There is no formal data publicly available but O'Malley says: "The clubs that stick to our system - and not all clubs do- and trade once a month have an average return of 25 per cent per annum."

However, investors must bear in mind that TICN retains 5 per cent ownership of each club in its network, and is therefore entitled to 5 per cent of the club's assets.

Rory Gillen, course director of ILTB and co-founder of Merrion Capital, warns inexperienced investors to beware of the perils of "trading" - speculating on short-term movements in share prices - rather than "investing", which is a longer-term, less active approach.

"Most of the other training courses around teach trading, they teach speculation," he says. "Trading is like playing poker. You can win a little bit here, a little bit there, but ultimately you lose the game.

"The fact is that 95 per cent of people will not be able to get the market returns if they trade the market," Gillen adds.

The ILTB seminar costs €850 (before discounts). Gillen stresses that the unique selling point is that its course teaches defined, time-tested investment strategies that inexperienced people can implement with very little effort. "It's not a trading strategy. What you're trying to do is build up a proper portfolio and then adjusting it from time to time," says Gillen.

ILTB describes its approach asarmchair investing, which only requires a few hours a year to implement, and is therefore suited to time-pressed investors.

So far, ILTB has helped to set up between 30 and 40 clubs, retaining 2 per cent ownership in each club. Clubs also have to factor in the ongoing cost of accessing the members' area of the ILTB website, which costs €499 a year.

Although ILTB courses and clubs are predominantly male, Gillen says he sees no reason why it shouldn't be 50/50. He also finds that ILTB customers are mainly in their 30s or 40s, but would encourage people in their 20s to take an interest in the stock market. "If they get the stock market message in their 20s, they can retire early," he says.

While ILTB and TICN are the two main Irish players in the market, Fexco Stockbroking is also getting in on the act. Stockbrokers in Fexco's Cork office run 10-week introductory courses on stock market investing and then help to establish investment clubs for anyone interested. This service is free but the club then buys and sells shares through Fexco.

Nick Darmody, a stockbroker at Fexco, says it has already set up more than 40 clubs. Overall, these clubs have probably outperformed managed funds, he says, because such funds apply so many fees.

So will the investment club model continue to gain popularity at its current frenetic pace?

The investment club network is going to be as big as the credit union movement, predicts O'Malley, who hopes to grow TICN's network in Ireland to 1,000 clubs and 20,000 members.

"It's a bit like a silent revolution in that people are fed up with their pension funds not performing and they're fed up with dealing with expensive brokers."

Setting up a club

1. Identify a group of like-minded people that you believe might be interested in the idea of establishing an investment club.

2. Agree with all the members a set of rules that will apply to the behaviour of the club and its members.

Draw up a constitution to spell out the basic principles of the club. (A sample constitution can be found in the Irish Stock Exchange's investment club guide)

3. Agree on a subscription level that all members are happy to invest on a regular level.

This tends to range from €50 to €100 a month from each member and is generally paid by direct debit into the club's bank account.

4. Make sure that all members agree to operate a credible accounting system to manage the subscriptions being paid into the club, the investments made with those subscriptions and the value which individual members have in the club.

5. Put in place arrangements for the decisions of the club to be implemented, for example by appointing a stockbroker. One or two members should be appointed as the club's trader and authorised to buy or sell investments on behalf of the club through the stockbroker.

6. Agree on the investment strategy/risk profile that the club will adopt and, if necessary, divide activities among members, for example researching a particular company or sector.

7. Agree arrangements for holding regular professionally organised club meetings, which may be monthly, quarterly etc, depending on how frequently investment decisions have to be made.

(A recommended club meeting agenda can be found on the TICN website, www.ticn.com)

Castlebar Apex Club

Some of the above information is taken from the Irish Stock Exchange's guide to establishing and running a club for equity investors in Ireland

The Apex Investment Club in Castlebar couldn't have a more diverse membership, with a plasterer, a teacher, a haulage contractor, a farmer, a civil servant, a restaurant owner, a publican and even a Leaving Cert student among its ranks.

Martin Henry - the plasterer, and also the club's chairman - says that, like several other members, he had some experience of investing "solo" but was lacking in confidence.

Apex was set up just over a year ago and, so far, it's going well, he says. It recorded a net profit (after all expenses were factored in) of 10 per cent in the first full year, although it had been 24 per cent ahead after the first six months.

"I think once it was beating what they could get in the bank, everyone was fairly happy with that," he says, although they are hoping to improve on this performance over the longer term.

At the outset, they decided to invest in UK market mid-caps, as they felt that the Irish market might be at a bit of a peak.

Many of the members had attended Invest Like The Best (ILTB) seminars, and it was agreed that they would implement one of the strategies explained on this course.

"With the amount that we put in at the beginning, that allowed us to buy 12 of the 15 companies [ recommended by ILTB] in the strategy," he says.

Over the next few months, the club bought the remaining companies and, once the full portfolio was in place, very little work was required by the members.

They pay an ongoing fee to access the ILTB website which lets them know how to update their strategy, so they don't have to spend time researching companies and sectors themselves.

Because of this, Apex members have agreed that they only need to meet once every three months from now on.

The club has now decided to branch out into the US market. "We're getting more courage as we go along," Martin says.

As well as bolstering everyone's confidence and taking away the fear of investing in the stock market, club meetings have turned out to be enjoyable social events.

"Everyone is there with the one thing that they want to talk about," Martin explains. "They've the one common interest. It's interesting talking to all these different people."

Investing in the stock market without the proper knowledge and the proper approach is like trying to plaster a wall without any experience, Martin sums up philosophically. You'll get a few smooth patches, but the wall will look pretty shoddy.