Share Clubs Are a Hidden Asset

By David McEwen

Saturday 30th September 2000 1 Comment

I always had the impression that investment clubs were a 1980s phenomenon that died off in the years following the 1987 share market crash.

However, after meeting several members of such clubs recently, I have been surprised to find that they are thriving. Perhaps because of their reputation as hothouses of self- interest, clubs tend to keep a low profile but there appears to be hundreds, if not thousands, around the county. Some have portfolios worth millions of dollars that have been built up over many years. Despite this, their members are more likely to be typical New Zealanders than hotshot entrepreneurs.

Share clubs are an excellent way of building wealth.

Members pay in regular amounts then meet - often monthly - to discuss what to buy and sell.

Many have a professional investment adviser, administrator and a trustee to safeguard the portfolio. The latter is essential as most share clubs are special partnerships and therefore do not have the right to own shares. That means shares have to be vested in a club member or members if they agree to act as trustees or in a specialist trustee company.

Although external advisers may be used, the purpose of a club is to enable members to make the final decisions by voting. When shares are bought on a collective vote, a rule usually is established about whether it should be a simple majority or some higher level, such as two-thirds. Some clubs have a committee of two or three members to make the investment decisions. These members stay on the committee for a few months before handing over to other members so that everyone has a turn.

Like other clubs, members can participate by taking up responsible positions such as president, secretary and treasurer.

As well as helping people to build wealth, investment clubs are good places to meet like-minded investors and learn about the art and science of making money.

Of course, there are some potential negatives as well. Decision- making can be a slow process when a large number of people are involved, especially if opinions for and against are firmly held. Also, if inexperienced members dominate a group, costly mistakes sometimes get made.

For these reasons among others, many people do not place all their wealth in a single club. Some are members of more than one while others like to manage additional portfolios on their own.

Chances are there is an investment club near you already although finding them may take a little time. Another option is to form one. In both cases, try asking friends and neighbours or local investment advisers. There is also a new specialist web site http://www.shareclub.co.nz/ that may be worth a visit.

One of the best things about an investment club is that it forces people to spend time on building their wealth. Many people become distracted by day-to-day living and forget about the need to save for the future. Or, if they do save, the money often ends up in low-yielding bank deposits.

The investment process can be intimidating and many people avoiding getting involved. By joining a club, it quickly becomes clear that successful investment is not rocket science - and it's fun.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. He is commissioned by the New Zealand Stock Exchange to write an independent personal investment column. He can be reached by email at davidm@mcewen.co.nz.

Comments from our readers

On 27 July 2014 at 2:03 pm Cliff Dew said:

It seems that shares Clubs generally do not advertise for new membership, and the reason seems to be that advertising might me seen as advertising a FINANCIAL PRODUCT and therefore might contravene various regulations and other legal requirements. If a Clubs wishes to advertise for membership would it need to produce a prospectus ? How might a Club seek out new members other than by the old "Word of Mouth" method ? I would love to have your views on this aspect of running a Share Club ?