Having seen their profits dramatically reduced as a result of the turbulent markets, Swanvestors investment club decided to take drastic action.

Having been formed in 2001 – right in the middle of the last big downturn – volatile markets are something that the members of the Swanvestors investment club are used to. They have a rigid stop-loss policy and were not shy in selling stocks that were falling when the market began to turn in 2008.

‘In January we sold three of our nine shares as a result of our rigid 10 per cent stop-loss policy,’ explains club secretary Michael Grinter. ‘Among those that disappeared were M&S, Tesco and Barclays. We kept hold of Vodafone, Sage and Morrisons because they had outperformed, but come February these were sold too.’

A strong starting point
At the start of the year, the investment club members where happily sitting on a profit of around £750 each, derived from an initial investment of £2,500 each. ‘Admittedly, this doesn’t seem great, but considering that we formed during the last downturn, any profit was a bonus,’ says Grinter.

However, for Swanvestors, the recessionary nightmare was only just beginning. ‘After selling off six of our nine holdings, some of our members expressed caution about our intention to start buying again. But, the argument prevailed that we are an investment club and not a savings account, and so we began hunting for new ideas.’

One company that was chosen for investment was mobile gaming software specialist Probability. ‘On the day we purchased Probability, it fell 18.4 per cent. Despite our policy, we opted not to sell and a couple of weeks down the line the share price surged by 21.2 per cent in one day,’ Grinter enthuses.

March, however, was still a sorry month for the club: ‘Our unit value dropped below 100 for the first time in about five years, and our profit halved – but we were still in profit, so I guess that was something to be pleased about.’

A long-term view
Becoming more strategic in their stockpicking process, the club began searching for those companies deemed to do well during the downturn. Grinter explains, ‘One of our favourites was Hikma Pharmaceuticals, which paved the way for a great month in June when it beat the FTSE by 15.7 per cent, closely followed by Dignity (11.2 per cent) and Capita (10.3 per cent).’

Last year was one of the most volatile periods for the stock market, with the majority of companies seeing their share prices fall regardless of sector or underlying fundamentals. For investment clubs, however, the urge to buy good-quality companies at low prices remained strong. ‘Buying shares becomes a bit like a drug, and because we decided to stop purchasing in August, we were getting a little bored.’

Having looked at the figures, which suggested that a tracker fund would have performed far worse during the downturn than their own portfolio, the members of Swanvestors decided to purchase ASOS – a decision taken as a result of their children’s shopping habits – and Domino’s Pizza, believing that more people would be enjoying takeaways as opposed to eating out.

However, it was at this point that the club made their most radical decision yet – to suspend their stop-loss policy. ‘We opted to buy blue-chips to see out the recession, cancelling our stop-loss to benefit from the dramatic swings that the markets were experiencing.

‘I am surprised at how much we clung on to companies with which we felt comfortable, such as Dignity and Serco, and equally that we opted to add HSBC to our portfolio – believing that it was the only strong bank left.’

The latter proved to be a good choice, with the bank making the club a gain of £700 in one week. However, the lack of a stop-loss meant that when the stock began to fall, the club was unable to make a decision to sell and protect their profit quick enough – undoing all of their good work.

‘In view of our mistake with HSBC, we opted to reintroduce the stop-loss policy of 10 per cent, which would be triggered once a share had gained 25 per cent. Once its value had gained 25 per cent and then fallen back
10 per cent, we would immediately sell without any discussion.’

Serco, the global service company that manages research laboratories, local education authorities, leisure centres
and prisons, was one investment that highlighted the importance of having a stop-loss policy in place. Having opted to buy the stock, the club was pleased when the stop-loss automatically sold it and netted them a 33 per cent profit in just two months.

Calm after the storm
The last 12 to 18 months has been a unique time for investors, pushing most to their limits and leaving many portfolios depleted. But, as the light at the end of the tunnel becomes brighter, and the green shoots are beginning to appear, the Swanvestors are glad to see things picking up.

‘The value of our portfolio has risen gradually throughout the course of this year,’ enthuses Grinter. ‘Our unit value has gone up from 85p in January to 93p and our profit has risen to around £200.’

And he notes that the past 18 months has certainly taught the club one important lesson: ‘Shares can go up and down, but how, why and when they do remains a mystery to all.’