The endurance of the investment club

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Successful investing is a lonely pursuit, or so we are led to think. Investors are frequently warned to avoid dangerous groupthink, to hold back from ‘crowding’ into hot trades, and to conduct their own research rather than blindly following others. ‘Follow the herd’ is an established investment mantra only for those who are involved in momentum investing

And yet investors have often banded together with great success. Nobody is an island, and as any professional investment committee will tell you, stock and fund pickers can achieve a lot when they channel their knowledge and resources. In the private investor space, successful individual traders can command huge followings, while users of Reddit’s Wallstreetbets forum famously managed to outgun hedge funds shorting GameStop (US:GME) in 2021.

But there are far earlier examples of individual investors working together, albeit in less dramatic fashion. So it has been for share clubs, also known as investment clubs. Often comprising groups of friends or relatives who run a shared portfolio and debate potential new holdings in a social setting, such clubs were both lively and numerous at the turn of the century. Many are now long-standing entities, and over time they have helped thousands of individual investors to learn more and hone their skills.

Sadly the apex of this era has now passed. From banks to investment platforms, providers seem less willing to facilitate club accounts than they once were. The administration involved for members of existing clubs can also be deeply onerous, and recruiting new members can be a challenge.

Out with a whimper?

Yet of the several current and former club members that spoke with Investors’ Chronicle for this article, an overwhelming majority painted a happy picture. By attending or running clubs many have managed to grow their assets and become better investors through a combination of debate, education and experience, while social benefits of such clubs are not to be discounted in organisations less fixated on portfolio optimisation. Long friendships have formed at the clubs, and some entities have leaned further into the social side than others: one IC reader joked that their club had once been described as “a drinking club with a share problem”.

The clubs have been pretty hardy, withstanding all manner of challenges both in markets and in life. Different members have talked of getting through the financial crash, personal difficulties and even the lockdown days of the pandemic, when meeting in a pub or a friend’s home to discuss stocks became impossible. And yet nowadays the biggest existential threat to such clubs is administration.

If such clubs were once popular and strongly advocated by investment platforms such as The Share Centre, it has grown increasingly difficult over the years to find a home for a group investment account. When Investors’ Chronicle asked the UK’s major platforms about their approach to share clubs, almost every provider said they did not offer such accounts.

A good number appear to have never done so, and while the UK’s two biggest names do have some share club accounts, they are not accepting new applications. Hargreaves Lansdown noted that the firm had a “very small” number of investment club accounts remaining, running to several hundred and accounting for less than 0.05 per cent of the firm’s client accounts. “Innovations such as the Watchlists feature Hargreaves Lansdown offers allow people to buy virtually without going through the process of establishing an investment club,” they said. “Furthermore regulation, including anti-money laundering regulation, has made running these types of clubs more onerous from an administrative perspective.”

Interactive Investor, which is likely the main home for investment club accounts, having bolstered its numbers by acquiring the likes of The Share Centre and a retail customer book at Equiniti in recent years, is also not accepting new accounts. “While we honour our obligations to investment clubs we have on our platforms, due to very low demand and the high costs and complexities of managing these types of accounts we are no longer taking new investment club applications,” the company says.

The platform had 1,879 share clubs on its books as of earlier this year – an impressive number when setting up new clubs is so difficult – but the direction of travel seems clear. “There have been peaks and troughs in their popularity but the trajectory has been downwards,” the company says. “For example, The Share Centre, which had taken a lead on investment clubs, had 2,000 investment club accounts in early 2017, and at migration to Interactive Investor in February 2021 that had dropped to around 1,400.”

Some entities may well still offer a way in: of those firms contacted by this magazine, Redmayne Bentley noted that it had worked with clubs throughout its history and that it was “willing to consider investment clubs looking to appoint a stockbroker”. But the options seem limited, and existing clubs have reported having to deal with an off-putting level of administration when making changes to accounts at both platforms and banks.

What’s more, many clubs have pointed to difficulties recruiting new members. While that may reflect the rise of online investment communities and the sheer level of resources available to individual investors nowadays, another culprit could be a lack of a central hub. One website, Proshareclubs.co.uk, once served as a valuable resource for groups, providing a thick manual for those wishing to set one up and offering forums where budding members were able to connect. Users could also once register a new club on the site, but it appears to have gone dormant in recent years. Investors’ Chronicle was unable to contact the owners of the site, and one page notes that its famous manual is now “out of stock”, even if some individuals do still occasionally use its forums to seek out fellow investors.

This is all pretty discouraging reading for anyone running or seeking such a club. But a renaissance of sorts might be on the cards for investor communities, and clubs can tell even non-members a great deal about investment practices, both good and bad.

The lessons we take

Whether you discuss investments with friends already or simply conduct your own research, share clubs can point the way on a number of issues.

One of these relates to marshalling a diversity of knowledge: several long-running clubs told Investors’ Chronicle of how, when debating ideas, they had benefited from different forms of experience and expertise. Take the Halesbridge Investment Club, which this year hits the 50-year mark, having been founded by two friends in the West Midlands in June 1972. Frank Wayt, club chairman, notes: “What’s interesting is the varied background [of members], including stockbroking, teaching and the retailing business. It makes for a good mix of discussion when we meet up.”

Other clubs also highlight members from all walks of life, varying from architects to musicians and accountants – something that should bolster the overall level of insight into different companies. This can of course be difficult to replicate outside of a group dynamic, but it serves as an encouragement for investors to read as widely as they can about different topics and indulge their curiosity when it comes to encountering specialists.

A related lesson comes down to understanding investment fundamentals – something that can certainly take time and dedication – and favouring these over alluring narratives alone. More generally, stories relayed by the different clubs point to the fact that painful experiences of investing, while off-putting in some ways, can mould you into a better investor.

Take, for one example, the Kent-based Grumpy Old Men’s Investment Club, which stemmed from a group of men at their local church and has been running for around 16 years. Member Barry Cadman notes that the club’s original remit was to buy cheap stocks with exciting stories that, as it turns out, sometimes lacked strong fundamentals. “Our main naive flaw was the concept of having fun by investing in what we subsequently learned were casino shares,” he explains. “We could only buy small amounts in what were virtually penny shares, and neither were we really aware of the costs of investing. You can see the picture – let’s buy £250 in smart meters. Sometimes we were ahead of the game, too far ahead. [The problem was] not understanding competition, moats, PEG ratios, NAVs or fundamentals, let alone how to attempt to read accounts or do any decent research ourselves.”

As Cadman puts it, the group learned some painful lessons from the search for the 10-bagger. But this club and others have learned to seek out research where possible and to pay a closer eye to company fundamentals. Research itself can be difficult: some clubs have turned to stockbroker connections for analyst notes, to accompany the analysis of company reports that are available to all.

Some other mistakes – and lessons – will be well known to readers. Wayt, of the Halesbridge Investment Club, talks of a tendency to both buy and sell too early, although overall returns remain in the black. On a positive note, clubs can and do learn to hold their nerve in difficult times. Kirit Amin, who chairs the Black Monday Investment Club, in existence since 1999, notes: “There have been some poor years, which taught us that while some discipline doesn’t help us to profit, it has proved useful at softening losses. For instance, we do diversify by sector and geography, track performance and use trigger alerts. The diversity of view within the club has also had the benefit of ensuring that not all eggs end up in one basket.”

On the diversification point, as the name suggests, share clubs do still tend to focus on stocks to a greater extent than funds. As the chart shows, the average investment club account on Hargreaves Lansdown will tend to have a much higher weighting to stocks than a typical Stocks and Shares Isa on the same platform.

What does the future hold for investment communities?

How investment clubs have ultimately fared in comparison with markets and individual investors is difficult to ascertain, although historic research suggests it hasn’t always been an unqualified success. A paper published by the University of California in the late 1990s, “Too Many Cooks Spoil the Profits: The Performance of Investment Clubs”, found that in the US, 60 per cent of a randomised sample of 166 clubs had failed to beat both the market and the average individual investor from February 1991 to January 1997. But clubs will vary wildly by performance. It’s also worth noting that individual investors may well pick up useful knowledge and inspiration from clubs that drive their own successful performance.

Share clubs may well still have some life in them yet. David Riches, of the UK Shareholders’ Association, is keen to foster greater club membership, and is happy to receive details from clubs seeking new members. Those wishing to get in touch can email ic@uksa.org.uk.

Other avenues are available for collaboration. SIGnet is a network of clubs where investors can discuss ideas, but without the shared accounts share clubs are known for. SIGnet’s Ray Williams says it has 31 groups which vary in size between six and 20 members. The network has been growing in recent years, and Williams describes it as “a group who get together to talk in a civilised manner and swap ideas”, with an emphasis on people talking as equals. One important part of this is a rule that individuals resist talking about the amount of money they have invested. Further details can be found at https://www.sharesoc.org/signet/.

Elsewhere, Gavin Oldham, who originally founded The Share Centre, remains excited about the concept of “egalitarian capitalism”, with individuals investing in shares across the world. He, for one, is interested in the idea of customer share ownership – imagine, for example, individuals providing data to the tech giants in return for shares. 

Finally, it’s hard to ignore the rise of social media – from Twitter serving as a debating venue for stockpickers to Reddit’s influence among investors. Forums are also numerous, from outfits such as The Lemon Fool to those associated with investment platforms, while Whatsapp groups, sometimes set up through third-party providers, also serve their purpose.

Forums, for one, can still be a lively place: Freetrade notes that its forum has on average 10,000 active users logged in a day. As the chart shows the different discussions can be well read although they do vary in subject manner. While topical stocks, funds and trades were all up for debate at the time of writing, one thread gaining some traction was simply entitled: “Which animal could you beat in a fight?” Lessons, and debates, can come in many forms.