Running a successful investment club

Your first official meeting

The inaugural meeting of an investment club is always an exciting first step. It is also the meeting where a number

of key decisions must be made. At the first official meeting, call the meeting to order and go over the material you

have sent to club members. Ask everyone to introduce themselves and explain why they came to the meeting and

are interested in joining an investment club. Emphasise that this is not a get-rich-quick scheme and explain the

principles of slow wealth building. If possible, have an experienced investment club member available to help answer

any questions that might come up. When the group is ready to move on to operational procedures, you will find the

materials in this document very useful.

Regular meeting date, time and location

You will need to decide on a regular frequency, time, place, length and format for your meetings.

Frequency

A lot of investment clubs meet monthly to discuss their portfolio, make buying and selling decisions and consider

changes to their strategy. Investment clubs that meet less frequently (e.g. quarterly) must give one person or a subcommittee the power to make investment decisions between meetings.

Time

Try and hold your meetings at the same time every month. Make sure the time suits everyone so that people are usually

able to attend.

Place

Investment clubs hold their meetings in a variety of places, including at members’ homes or workplaces, a local library,

coffeehouse or pub. Pick a place that suits everyone. For example, will all members (and their spouses) be happy to

have the entire investment club at their house?

Length and format

Outline the items of business you plan to cover at each meeting and allocate an amount of time for each. This can

include presenting potential share purchases, discussing existing investments and inviting guest speakers such as

research analysts or tax specialists.

Most meetings last between one and two hours, but can also include time to socialise after the meeting. Agree on

whether you will serve snacks and refreshments after the meeting.

Some investment clubs also hold periodic get-togethers in addition to regular investment club meetings. Combining

the serious investment and informal social aspects make for a great way to increase your wealth in terms of both

financial performance and new friendships. 

Running a successful investment club

Meeting agendas

A typical meeting agenda will include:

• minutes of the previous meeting and matters arising

• changes in the portfolio since the last meeting

• the Club Treasurer’s report

• reports from people who were given tasks at the last meeting

• discussions and decisions on investments

• any other business

• date, time and location of the next meeting

Between the first and second meetings

Split up responsibilities and review everyone’s assignments.

Each member of the organising committee should do their research and be prepared to

explain it at the next meeting.

• The Club Treasurer must open a bank account and a trading account on PSG Wealth’s trading platform.

• The Club Treasurer must set up the club’s accounting system in Excel.

• The Club Vice President/Education Committee must prepare to lead the first education programme.

• The Club Secretary must order the Wen Professional Plus technical analysis software from PSG Wealth

Everyone must think of names for the club to discuss the next time you meet.

Your second investment club meeting

At your second meeting:

• Choose the name of your club.

• Write a Mission Statement.

• Develop the Investment Club Constitution and Rules, or modify an existing template.

• Develop a set of operating procedures, or modify an existing template.

• Develop a trading or investment strategy, or modify an existing strategy template.

It might not be possible to complete all of this in one meeting, so you might have to schedule more. 

An introduction to investment clubs PAGE 24

Running a successful investment club

Safeguarding club assets

While this certainly does not happen often, you need to keep the club’s money safe from club members who might be

tempted to steal it.

• Open a bank account for deposits – Assign someone (usually the Club Treasurer) to open a current account

with a leading bank. It is best to have a two-signature account (so that two people have to sign off transfers

out of the account), with SMS and email alerts when money is deposited or withdrawn. It also makes things

easier to add the investment club’s trading account as a beneficiary.

• Open an online trading account on PSG Wealth trading platform– Discuss if you want to work with

a full-service stockbroker (who can give your club advice at a fee) or an online stockbroker (who will simply

handle your trades). For better record keeping, register all shares in a ‘street name’ or ‘Nominee account’.

This involves your broker setting up a trading account in the investment club’s name. The purchase or sale

of investment club shares will then be registered in the brokerage firm’s name (street name) but will be

recorded in the investment club’s account. Only the Club President and the Club Treasurer (Trader) must have

authorisation to buy and sell shares

Open a trading account

• As a new user, you will need to choose a username and password. As an existing user, you will need to verify

your username and password.

• Confirm your chosen investment product (e.g. Equities)

• Enter your personal details.

• Enter your banking details.

• Accept the Terms and Conditions.

Documents needed

PSG Wealth will need the following information from the main member (Club President/

Trader):

• particular schedule

• consolidated mandate

• copy of ID of individual (i.e. main member)

• proof of income tax number (SARS document)

• utility bill that proves residential address (e.g. water and lights account)

An introduction to investment clubs PAGE 25

Running a successful investment club

The main member must complete a mandate to open a trading account. A resolution (see

Appendix 5 - page 42 for an example) must accompany this mandate and must state:

• the main member’s name and ID number

• the main member’s bank account details

• a list of investment club members, with their ID numbers and original signatures

• copies of each members’ ID

Each club member can also open a free trial account and link their profile to the investment club account. From here

they will be able to view the investment club account, but won’t be able to perform any transactions on the trading

account. To link the accounts, the Club Secretary must email the list of usernames to be linked to PSG Wealth’s online

trading compliance department to clientservice@psg.co.za.

Investment club constitution and rules

Your club must have a constitution and rules (see Appendix 7 - page 47). This covers all aspects of running the

investment club and protects the interests of club members. It is up to you to decide what goes in these two documents,

but it is safest to adopt tried and tested templates used by other investment clubs. Also remember that your rules

might change from time to time. However, many investment clubs require that 75% of members must agree to a

change in rules.

Book of accounts

The Club Treasurer must keep a book of accounts. It must be available to all members for inspection at all times.

Key reports in the book of accounts are:

• the cash account: movements in and out of the club’s bank account, and the current account balance

• the capital account: a statement of the units owned by members and the prices at which they were bought or

sold

• the assets register: a statement of the cash and shares that the investment club owns (up to the date of the

current meeting, if possible)

All updated accounts must be sent to club members every month. The asset register can be useful in a discussion on

future investment decisions, because it shows the current make-up of the investment club’s portfolio.

The cash account

Two principles underlie the cash account:

1. Every transaction that the investment club makes is recorded.

2. There are two halves, receipts and payments, and they must always tie back to the bank statement (reconciled

monthly).

Running a successful investment club

Transactions to be recorded include:

Inflows

• monthly subscriptions from members

• dividends from investments (if dividends are withdrawn)

• interest on cash deposits

• cash from shares sold (if cash is withdrawn)

Outflows

• share purchases

• withdrawals

• bank charges

Cash accounts can be kept manually, but it is a lot easier to use a spreadsheet. The investment club can also buy special

software. Whichever method is used, the cash account must show the complete trail of transactions with enough

clarity to satisfy the investment club’s auditor at the time of the audit.

Although the cash account is updated monthly, the Club Treasurer does not have to run it from the last day of one

month to the last day of the next month. (You can choose to run these from the 28th of every month, for example).

The capital account

The capital account is also prepared monthly by the Club Treasurer. It shows:

• the number of units each member had at the end of the previous month

• the value of units in the current month

• the number of units bought and sold by each member during the month

• the number of units each member had at the end of the month

The capital account is distributed to all members, so that everyone knows what everyone else has bought and sold,

and the total number of units they own.

Remember that the abiding principle of the capital account is the ‘unit valuation system’.

Under this system:

• When the investment club is launched, units are valued at R1.00, so members get one unit for every R1.00

they invest.

• The value of units is recalculated every month, to reflect the receipt of dividends and income, and changes in

the value of the shares owned by the investment club. The Club Treasurer calculates the unit value by taking

the assets of the investment club and dividing them by the number of units already issued.

• Purchases and sales during a month are valued according to the valuation at the end of the previous month.

An introduction to investment clubs PAGE 27

Running a successful investment club

However, there are a couple of refinements to this system. The first is investment club

brokerage.

• Many investment clubs charge a brokerage fee when members buy units, to pay for stockbroker fees.

• Other clubs charge a brokerage fee only when members withdraw money by selling units.

If your club charges brokerage when members buy and sell units, there will be two unit values each month: One is

the price for buying and the other is the price for selling, which will be lower than the first price by the amount of the

brokerage fee. The advantage of charging brokerage on selling only is that it covers the cost of selling shares if the

Club Treasurer has to pay a member making a withdrawal.

The other refinement is the treatment of surplus cash.

• Each month members will contribute a fixed amount. This divided by the sales price of a unit gives the

number of units each member buys.

• The odd amount left after this purchase is called surplus cash, and the Club Treasurer must keep a note of this

and add it to the contributions for the following month.

The asset register

The asset register records the assets of the investment club, including cash in the bank account and shares. The cash

should match the investment club’s bank statement, and the shares should match the portfolio holdings available on

the PSG Wealth trading platform.

Note the following:

• Risk analysis – Many Club Treasurers divide the ledger into low-, medium- and high-risk sections, and then

list the investment club’s shares in the relevant section. This helps members to monitor the overall risk profile

of the club’s portfolio, and compare it month by month.

• Sector analysis – It is useful to show the different industry sectors that the portfolio contains. Again, this

helps members to get a quick understanding of the composition of the portfolio.

• Valuations of shares – Most investment clubs use the mid-price of the share on the last day of the month to

calculate its selling value.

• Surplus cash – Surplus cash belongs to members and not to the investment club, so it appears as a liability

on the register.

• Unit valuation – The asset register allows the Club Treasurer to calculate a unit valuation. The net assets

divided by the number of units in issue gives you the value of each unit.

Valuation of a partnership

The current value of the share portfolio less the current value of debts and liabilities gives you the value of the

partnership. This will be determined by the Club Treasurer after the close of the market on an agreed day before

the meeting. The Club Treasurer will send this value out to members before the meeting. It will be the first point of

discussion at the meeting, so the Club Treasurer’s report can be passed.

When a member leaves the investment club, the club will pay the member the value of their share of the club’s

investments. This represents a disposal for capital gains tax (CGT) purposes. 

Running a successful investment club

To calculate the chargeable gain, the member must take the amount they receive and

deduct:

1. the amounts the member has paid into the investment club

2. the income (net of tax or tax credit) the member has received, adjusted for any losses allocated and any

amounts paid out to them before

Education programme

Ongoing education about investing in shares is very valuable. Some investment clubs have a separate education officer

or coordinator, which is usually the Club Vice President. The Education Officer is responsible for planning (with the

input of the group) an educational programme. This can include presentations, field trips, guest speakers and assigned

reading or case studies.

A good way to start might be to go around the room and ask members to say or write down what big questions they

have about investing that they would like answers to. You can also look at PSG’s tutorials, webinars and seminars.

Finally

Agree to have fun and keep your meetings friendly and co-operative. Remember, the main objectives of investment club

meetings should be to educate and learn, to make profits and to have fun!

Summary

There may seem to be a lot of paper work involved, but down the line it is for better record keeping. This will keep you better informed about the financial position of the investment club, will give an accurate picture of your investment club and its operations and will help you to verify all income and expenses for tax purposes.

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