Rather like a marriage, when the excitement of the wedding has settled, there comes a time when investment clubs have to get real. Just getting together is not enough to guarantee living happily ever after.

After all, one in three marriages are destined for the rocks and, although I haven’t got the statistics, the parlous economic state of life in Britain means the same will almost certainly be true for investment clubs.

Luckily, a saviour is on the horizon – me. In my capacity as leader of a new organisation, Relate for Investment Clubs (RIC), here are some basic principles that will help you to choose shares that will save your investment club.

1. Variety is the spice of life
Pick shares from various sectors. This will minimise the effect that fashion can have on the stock market, where an industry can fall out of favour with the investing community. A typical example would be the construction industry, where US sub-prime mortgages lit the blue touch-paper for a housing downturn.

The same thing can happen to almost any sector. A headline, justified or not, can upset a share price applecart because most investors – and I include the large institutions and fund managers here – are like lemmings. A whiff of bad news and they are over the cliff without a backward glance.

2. May the force be with you
Some sectors defy the present depression. The Jedi said, ‘May the force be with you’, and as far as investors are concerned, he was talking about areas such as oil & gas and commodities. Their share prices have the wind behind them so join the crew. Of course, momentum does not last for ever, but while it does, the sectors that it carries along in its wake are the ones that deliver the most attractive returns.

3. All shapes and sizes
Have a variety in size of share. The most commonly accepted measure is market capitalisation, but profitability and turnover should also be taken into consideration. Sensible portfolios have FTSE 100 stocks as their base. This does not guarantee safety – over the years a number of these giants have gone into terminal freefall, but they are the exceptions.

FTSE 100 membership is usually reserved for companies that have been around for a while, are now well established and have built themselves a cushion. They can live off their fat or downsize until the good times return. But small companies, sometimes
newly established, often already lean when it comes to human resources, are invariably without the wherewithal to survive a prolonged drought like 2008.

4. Know what you are getting into
That might sound like stating the obvious, but it is a sad fact that
an unacceptable number of investment clubs own shares in companies about which they cannot take questions. Ask them to describe the size, shape or usefulness of the widget concerned and they will look blank.

Try to discover the customer base, or the names of the top brass, or the environment in which the company does business and the silence will be distinctly stony. Yet without such information it will be impossible to properly monitor the progress of a share and therefore make an informed decision of when to sell.

These four principles are only the start of RIC’s investment course but they form the bedrock of its approach. Next month, we will discuss how to choose specific companies and the questions your club should ask the management before you buy.