What is the secret of successful investing? Well, getting your timing right certainly helps, but sometimes this is outside your control. Take the Mill Men Investment Club, based in Hemel Hempstead in Hertfordshire, for example. It began life in 2000, which, with the benefit of hindsight, was a far from ideal time to start investing.

Setbacks that year included the bursting of the dot.com bubble and September 11, which ushered in a period of several years when shares were in the doldrums.

At one stage, the value of the Mill Men Investment Club’s portfolio almost halved. But the club has weathered this storm and, with their portfolio now worth £20,000, they are successful enough to pay out an annual dividend to members. This year’s dividend was five per cent, which is healthily above the average yield on the UK stock market.

Like many investment clubs, the Mill Men Investment Club has an active social side, with its own social secretary. The club enjoys annual day trips to France as well as annual dinners, and the costs of these social activities are subsidised by the returns from the investments.

How it started

The level of social activity within the club, running alongside its core investment activities, reflects its origins as a workplace investment club formed by people who wanted to maintain their social contact with each other at the same time as developing an interest in investing in shares.

The club started with work colleagues from a stationery manufacturer, John Dickinson, who were nearing retirement. David Elkins, the club chairman, explains, ‘We started the club as a way of keeping a group of colleagues together into retirement. It gave us an excuse to meet up, have fun and make a bit of money. It certainly has been more productive than just going to the local pub for a few pints!’

The Mill Men Investment Club meets on the second Wednesday of each month at the hall of their local church, St Stephen’s, in Hemel Hempstead. Currently, it has 16 members, with new members asked to pay a £75 joining fee and an ongoing monthly subscription of £20. These fees are reviewed at the club’s AGM.

There is a strong emphasis on all members of the investment club playing an active role. Club secretary Peter Garner explains that ‘To keep the club vibrant, members are encouraged from the outset to attend at least 80 per cent of the meetings each year.’

Absolute beginners

David Elkins reveals that ‘All the members started with virtually zero knowledge. We had your typical shares in BT and British Gas following their privatisation but that was it.’

Peter Garner adds, ‘Frankly, we were all over the place when we started. We didn’t do our homework, so we were never quite sure whether we were making good investments, and we didn’t sell our shares early enough when they dropped in price. When we lost £500 on EasyJet, we decided enough was enough and we put in place a stop-loss policy.’

Indeed, the club’s members attribute the more recent success of their investment decisions to a much more structured and disciplined approach to managing their portfolio. Garner adds that ‘The main reasons for the recent success come from setting up an emergency committee (our “e-committee”) which can react to sudden market changes, using stop-loss share price monitors and learning the best time to sell shares.’

David Elkins explains that ‘Having suffered a series of setbacks, we felt we needed a committee that reviews share prices on a daily basis, in case anything untoward happens. We email each other almost every day, which makes dealing in tougher trading conditions easier. It is far more effective than having rigid buying and selling rules. For example, when Tesco’s price dropped a few weeks ago, we emailed around each other before deciding to hold our nerve and, lo and behold, the price went back up again.’

Overcoming setbacks

Indeed, it is important to realise that, as most investors find, not everything the Mill Men have touched has turned to gold. As well as EasyJet, they highlight a particular setback with regard to their loss-making investment in Railtrack as the impetus behind setting up their current system.

Elkins insists that ‘Buying shares isn’t hard. It is knowing the right time to sell that’s the hard bit, and that only comes with experience.’

The way in which the club’s emergency committee works is that a group of its members reviews the shares they currently hold and can sell half of the holding in a share whose value has dropped 25 per cent from its purchase price. A drop of 35 per cent triggers a sale of half the holding without discussion and a drop of 50 per cent means that the remainder must be sold.

Peter Garner explains, ‘We use The Share Centre’s automatic alert system to warn us when the price falls to a certain prescribed level. This, together with our stop-loss policy, has made a huge improvement in our performance.’

But the Mill Men have become even more sophisticated in their approach to investing. They have established a separate e-committee, made up of David, Peter and another member, which is responsible for reacting to sudden price fluctuations.

Lessons to be learned

So what advice would the Mill Men Investment Club give to other investors in the process of setting up clubs of their own? David Elkins feels that it is essential that new clubs ‘work by a set of rules. When we started, we read up on a lot of literature from stockbrokers about how to set up and run a club. Because we were all novices this was invaluable. You need to pick a stockbroker you can trust and work with. You need to be on first-name terms and feel you can pick up the phone to them at all times.’

He points out that ‘Investing in shares has been a real learning curve. A lot of our investment decisions have been trial and error. A company’s performance is not always reflected in its share price. To sell immediately when share prices go down can be a mistake. We have found that they usually do come back up again in a short space of time.’

Elkins also stresses, ‘We have kept the same principles throughout. The club tries to keep a balanced portfolio. We have invested in big blue-chips such as BP, Tesco and Rolls-Royce but also have a healthy mix of AIM companies.’

And he emphasises the key importance of keeping all members of the club equally involved. ‘At all our monthly meetings, every member puts forward suggestions of which shares to buy and sell. We hold a secret ballot where every member votes, and make our investment decision accordingly.’

You’ll find more information about investment clubs, and investing in general, on The Share Centre website at www.share.com/clubs.

This article is from the September 2007 issue of What Investment.