Introduction to investment clubs

Why be part of an investment club?

If you want to invest in shares, there are many reasons that you might want to do so as part of an investment club.

The main reasons are:

• Social - An investment club makes investing sociable. Meetings take place at members’ homes, in restaurants

or at pubs, where you discuss investment ideas. This is far more fun than agonising over decisions all by

yourself!

• Education - Few people have had any formal education in picking shares and managing a share portfolio. In

an investment club you pool your knowledge, brainstorm ideas and get everyone’s input when you make a

decision. This is one of the best ways to improve your investing expertise.

• Diversification - A key principle of investing is not to hold all of your eggs in one basket. To be properly

diversified (so that your investment risk is spread), you must generally hold between 8 and 15 shares. But if

you have limited funds, this can spread you a bit thinly. In an investment club, however, your money is pooled

with others. This means that the investment club can invest meaningful amounts in a properly diversified

portfolio.

Why invest in the share market?

Investing in the share market can be exciting. Prices jump around wildly and can rise or fall sharply overnight. While

investing can be a thrill-a-minute ride, is it really the right place for your savings? What if the markets take a dive? You

could lose everything! Would you not be better off parking your hard-earned money in a nice safe bank account, or

stashing it somewhere secret in your home?

The answer is no! Loud and clear! Are we nutty risk-loving maniacs who advocate investing as a thrilling – or even

dangerous – pastime? Absolutely not! We are cautious, sensible money makers who want to retire with a comfortable

nest egg and have figured out that investing in the share market is one of the best ways to do that.

So what is all the hype about? Let us take

a look at the numbers.

Let us assume that you started investing in 1985.

During 1987, the average return of investing in shares

was -46%. Ouch.

So, if you had invested your life savings at the

beginning of the year, things would not have been

looking too good for you by the end of that year.

However, if you had remained invested for the long

term, your average return would now have been over

4500% – and that is including the three massive dips

in value that your portfolio would have taken in 1998

(-44%), 2002 (-37%) and, more recently, in 2008

(-46%). This still gives you an average real (aboveinflation) return of 150% (based on 9.41% average

inflation) over the last 30 years! This translates into

annual real returns of 15.94%.

An introduction to investment clubs PAGE 7

Introduction to investment clubs

Do you think that a bank savings account can beat that? Think again.

While a real return of 15.94% sounds very impressive, it becomes even more impressive when you consider that this

is the return on your investment after factoring in inflation. If you had put all of your money in a high interest bank

account (e.g. 8%), by the time inflation has come into play (for the sake of argument let us say inflation is set at 10%)

you may even be worse off! A return of 15.94% above and beyond inflation is pretty good news.

Consider that only 5% of people ever achieve financial freedom. Investing in shares gives you the opportunity to earn

better returns than bank savings, while you have similar access to your money. An investment club can be a good entry

point to the share market.

The unsung heroes

Investment clubs are the unsung heroes of the investment world. An investment club is nothing more than a small

group of individuals, generally consisting of between 10 to 15 members and usually comprised of friends, co-workers,

church members, neighbours or family members. These people then pool a set amount of money and meet on a

regular basis (usually monthly) to invest in a combined investment club portfolio.

This has the advantage of bringing a diverse group of people together, each with his or her own insights, experience

and investment knowledge, which might not all have been available to you on your own.

Investment clubs are a great way for new investors to learn more about investing without risking a large amount

of money. In effect, you earn while you learn. By investing small amounts regularly, you can build up a substantial

portfolio over time, without having to make a big once-off investment. You can also transfer what you have learnt in

your investment club meetings to your own personal share portfolio.

The investment club advantage

Making profits is one of the main motivators for setting up an investment club – and most investment clubs do make

a good profit. But there is much more to an investment club than just making money.

Consider starting or joining an investment club if:

• you are new to investing and are looking for a good way to get your feet wet

• you would feel more comfortable learning about investing with others than on your own

• you have roughly R200 to R500 available each month that you can invest through the investment club

• you have been putting off learning about investing and sense that having a responsibility to the group would

give you some much-needed discipline

• you think it would be fun to have a group of people with whom to share company research and discuss

investment topics

An introduction to investment clubs PAGE 8

Introduction to investment clubs

An investment club can offer a number of benefits:

• Profit opportunities – Surveys show that collective investment decisions based on discussion and democratic

choice are more likely to produce sustained profits. By pooling your money with others, you can also own a

wider range of shares.

• Spread the load – Research into potential investments can be structured and spread between club members.

There is safety in numbers. Several people evaluating a share purchase are less likely to make the wrong

decision.

• Informed investments – The collective brain power and experience of people who each have knowledge

and experience of different market sectors will produce opinions and information that will guide you to

sensible decisions.

• Low risk – Pooling a relatively small amount of money with others every month will be an ideal way to gain

hands-on experience of how the share market works.

A place for experienced investors

Investment clubs are not just good for newcomers to investing.

You can also consider forming an investment club if:

• you are an experienced investor, but do not have the time to study as many companies as you would like

• you are confident in your investment decision-making, but you think it would help to bounce ideas off others and get

additional perspectives

• you would welcome the chance to learn from other seasoned investors who have expertise in areas you do not know that

much about

Joining an existing club

Most investment clubs occasionally seek new members, when existing members have to exit the club. This can be a

great opportunity to join, as you will not necessarily have to buy over the exiting member’s share of the club’s portfolio.

Many clubs allows new members to simply start contributing the standard monthly amount, and members share in the

portfolio according to the total amount they have put in.

However, it can be hard to find the right investment club to join. Members probably already have some friends they

could invite. Your best bet is to ask people you know if they are in an investment club, and whether they need or

anticipate needing any new members.

Once you find an investment club to join, take the time to learn more about it before signing up.

Consider questions such as these:

• Do you get along with the other members? If they do not seem like your type of people, this might not be the

best group for you.

• Do you have goals in common? Perhaps you are risk-averse and want to invest in more stable blue-chip

shares, but they are out to find volatile, fast-growing small capitalisation companies.

• Is the regular contribution too steep for you? K500 per month, for example, means RK 000 per year.

• Do you have the same basic investment philosophy? If you are a true long-term investor, you probably would

not want to belong to an investment club that relies mainly on technical analysis. 

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ZANAICA is promoted and hosted by Twende, Twende, an on-demand platform and Zambia’s first superapp, that also offers motorcycles (bodabodas) and tricycles (tuktuks), on lease to own, hire purchase model. Twende promotes investment clubs as an initiative to promote savings and investment culture in Zambia. To get free investment club training, do not hesitate to contact us https://wa.me/+260978240809, or https://wa.me/+260975386685 , or https://chat.whatsapp.com/ICzHvmEPFYn7HpwrSmEecB or email us at twende.store@gmail.com, or info@twende.store