The Acorns Investment Club takes its name from the familiar saying that ‘from little acorns do mighty oaks grow’. Not only is this particularly apt for an investment club whose objective is to make money from the stock market through a carefully considered programme of investments, it also reflects the fact that, in common with many investment clubs, their first meeting took place in a pub, which happened to be called The Royal Oak.

Based in Derby, the Acorns was formed originally from a group of friends and colleagues who ran a local football league. When that ended they still wanted to keep in contact as they enjoyed the social side of meeting up on a regular basis. They also saw an investment club as a chance to learn about the process of investing and how the stock market worked, and to make some money.

Social framework

Club spokesman David Redshaw has a full-time job as a university administrator and, alongside his fellow club members, has embraced the business of investing with enthusiasm. He explains, ‘We still meet at the local pub every month. We have a few drinks and make an evening of it. Making money is nice, but it’s not the main reason we set up the club. It’s great to have a topic of mutual interest.’

He emphasises the key importance of the social side of being part of an investment club. With reference to their former football days, he point s out, ‘Even though it is now an investment club, we still have our end of season dinner! We also have a Christmas get-together and a varied social programme.’

Redshaw also stresses that at the heart of a successful investment club is a process that involves all its members in the decision-making process, plus officers who make sure that the paperwork is kept up to date. He asserts that ‘A lot of the reason for being part of an investment club is to learn, so it is important that the club’s members are mutually supportive. You should have a formal voting system, you need to make sure you keep minutes of every meeting and a good treasurer is essential. We are lucky to have an excellent accountant fulfilling that role.’

Coping with volatility

In terms of their investment strategy, the Acorns Investment Club has been experiencing the ups and downs of the market in no uncertain terms over recent months, having invested significantly in the banking sector over the past six years. With the summer’s ‘credit crunch’ injecting a degree of uncertainty into what had previously been a consistently profitable sector, what impact did this have on the club’s portfolio?

No doubt David Redshaw echoes the feelings of many investors when he observes that ‘The banking sector was always considered to be a safe bet, but not any more. We have certainly felt the effects of the credit crunch. We have been hanging onto RBS and Standard Chartered. Both of which have taken a hit. I heard on the radio the other day that RBS was at its lowest for four years. We will need to review our strategy for this stock.’

This is an important lesson that many investment clubs will have learnt as a result of the recent market turmoil. The Acorns’ portfolio has held a number of financial stocks for many years and the longer you maintaining a holding, especially if it has generated strong returns or paid a healthy dividend in the past, the more difficult it is to view it dispassionately.

Redshaw underlines this feeling when he says, ‘It is shame as our club has been a big fan of RBS over the years and it has served us proud. It was the club’s first investment and RBS has been in and out of our portfolio regularly over the past six years. However, the considerable drop means we will be having a full review of our investment strategy at our meeting this month.

We will be looking to reshuffle our portfolio.’

Active management

This is a key aspect of the Acorns Investment Club’s approach to its portfolio. The club members are not afraid to be proactive in managing their investments, taking profits were necessary and getting out of holdings that don’t look as if they are going to deliver what they promised.

They have also come to appreciate that there is a positive side to falls in the market. As David Redshaw explains, ‘The falls give rise to opportunities to buy. We have found that this strategy often pays off, especially with the smaller companies on the Alternative Investment Market (AIM).’ Again, this is an area that many clubs avoid, but which can be a rich source of growth if you are prepared to research and monitor AIM-listed companies.

Financial considerations

Given the club’s leaning towards the financial sector, it would be surprising if it had not held Northern rock shares at some point. But, as David Redshaw reports, ‘We did invest in Northern Rock last year and it did well for the club. Thankfully, however, we managed to get out with a profit.’

He adds, ‘We discussed reinvesting in Northern Rock at our last meeting but considered the bank too volatile. The price has been jumping all over the place and is still too uncertain to consider even as an opportunity for a quick win. Other banking sector investments have seen us buy in Bradford & Bingley, while HBOS made a gain for us a couple of years ago.’

The members of the Acorns Investment Club remain unperturbed by the steady stream of bad news, much of it from across the other side of the Atlantic, which threatens to depress the market in general and the financial sector in particular. They are keen to stick with a strategy that has served them very well in the past, even if current events have made them reconsider some of their basic investment principles.

However, in the main, they are content to do the research and back their judgement. As David Redshaw explains, ‘Things like the Citigroup downturn certainly affect your judgment as an investor. When a bank dispenses of their chief executive, it is usually a sign that they are in trouble. However, this hasn’t been the case with all sectors. We have a holding in Marks & Spencer and following the appointment of Stuart Rose there was a complete shift in consumer confidence. We bought off the back of this and have done rather well.’