The phone rings. There’s one of those clever little gadgets on it that shows the number calling. It’s a great gizmo because there are a few folk, not many, who I really don’t want to speak to. Not this time though; the caller is my friend Ian Jackson, a graphic design consultant in Lichfield. So it must be the first Thursday of the month.

Ian is a member of the Merlin Investment Club, a group of seven who got together to tackle the equity market about five years ago. They meet in a top restaurant in the fair city of Lichfield and fortify themselves against the vagaries of the share business by wining and dining well.

Any bright ideas?
The conversation proceeds thus.
Terry: ‘Hello, Ian. It must be the first Thursday of the month.’
Ian: (testily) ‘You always say that. It’s boring.’
Terry: ‘I agree. It is boring. But you only ever call on the first Thursday in the month, and it is always for the same thing. Not “How are you, Terry?” or “How are the wife and the dogs?” or “Is your gammy leg better?”. All you want is a share tip because your investment club meeting is tonight and you’ve got to come up with something.’
Ian: ‘How are you and the wife and the dogs and is your leg better? And, incidentally, do
you know a good share I can recommend at our investment club this evening?’
While I haven’t actually been to any of their meetings, Ian keeps me abreast of their investment activities, and I know that their selections have generally done well over the years – better than most, thanks mainly to the fact that they play to their strengths.

Informed choices
Star of their firmament has been Renew Holdings, a specialist engineering and building group that the club bought some years ago when it was not much more than a penny share.

It has shown them a healthy paper profit and, despite falling 25 per cent from its high this year, the Merlin men have resisted the urge to sell because they believe it is a well-run company and that the share price “will come back”.

That, if I may make so bold, is Merlin’s problem. They refuse to reinstate their stop-loss policy. Ian has been a good friend of mine for the best part of 40 years now, and when I heard he was going to join the Merlin club I drummed into him the need for a disciplined stop-loss approach.

Clubs must have an automated system for cutting losses as soon as a price falls below a predetermined percentage.

Worth the effort
This is not rocket science; neither is it an exact science. Problems abound, particularly when it comes to actually operating the policy. Who is responsible for monitoring the prices?

How often should he or she check? Can you persuade the club’s broker to set up an automatic alert or, better still, sell automatically when the loss level is breached? Big hassle, but well worth it.

However, Ian is not impressed by my lecture. He argues, ‘We tried your stop-loss system but the members didn’t like it. As soon as we sold a share, the price went up again. We were missing profits.’

Terry: ‘Silly boys. When will you ever learn? By selling near the top, you can guard against a general financial downturn. And if you really, really like a share, you can sell, wait for its price to bounce by a predetermined percentage, then buy back in.’
Ian: ‘All right, know-all. I’ll tell them again, but I don’t expect they will listen. Now, about this hot tip you’ve got for me…’