The email came from he-who-must-be-obeyed: the chairman. ‘The markets continue to disappoint,’ it said. ‘Doom and gloom is everywhere. Almost all shares have gone down. Until things change there is little point in investing, so I see no good reason for the club to meet.’

What rubbish. Big John, first chairman of the fledgling Frantoio investment club, is entitled to his opinion, and as leader of the pack his decision must prevail. But from the safety of these pages I reserve the right to say that he is a silly boy.

Trust in the cycle
There’s no disputing that stock markets around the world have been in decline during the first five months of this year. The economic climate has been dark, a majority of share prices have tumbled and the forecasters are predicting that, overall, 2008 will be a year of pain without much gain. In these conditions the temptation is, admittedly, to shut up shop. But tarry awhile – for the savvy investor, this can be a time of real opportunity.

Let us look at the overall situation. Stock prices have gone down, not because of the dilatory way companies run their businesses but because the world economies are in disarray. Blame a gang of mortgage defaulters in America or a poor rice harvest in Timbuktu, there is little or nothing companies can do about it.

The commercial community will continue to chug along as it has always done and, apart from the odd cash flow blip, the stock market shenanigans will pass by almost unnoticed. And then, eventually, things will change. Bull will replace bear and share prices will start to climb. Maybe not this year, maybe not even next, but it will happen.

And when it does, the savvy investor will watch his portfolio, carefully constructed based on underlying value, quickly achieve its potential. And the silly private investor will do what he always does, miss the bandwagon and buy expensively. ’Twas ever thus.

Safety in numbers
Investment clubs provide a perfect route to turn silly investors into savvy ones. They provide a regular opportunity for members to spend time considering investments in a disciplined and sensible way.

Which shares to choose? That’s easy too. In a stock market downturn such as we have just experienced it is a statistical fact that almost every equity suffers, irrespective of past or even present performance. But when the good times return, the first green shoots to show are the shares of companies that are thriving – those that have continued to do good business and turn in steady profits.

In these days of instant financial information and the wealth of material available on the internet, you can easily create a list of candidates for your club’s rejuvenated portfolio. First, determine the sectors in which your club has expertise – by virtue of members’ work or hobbies. This will give you a head start in making informed decisions.

Next, compare the performances of companies in the sector. Look for steady five-year growth in turnover, profits and dividends. Narrow your target list down to a handful and then look at their websites, news flow and directors’ dealings. Finally, talk about the companies at your next club meeting, get everyone’s opinion, vote and, if there’s a majority for it, buy.

For members of the Frantoio investment club this column is required reading, so I have this message for them: ignore the directive of Chairman John. This is a call to arms. We must rise up, meet and honour our original pledge to invest regularly.