In tough trading conditions it pays to be prepared for whatever the markets might throw at you. This month, What Investment finds out how the Wolferstan Investment Club has met the challenges of the recent economic downturn.

The Wolferstan Investment Club was established in 1999 to provide a network of friends and neighbours with an interesting way of learning how to invest their pensions and savings.

Today, learning how best to invest is as important as ever, and the club continually looks for improved investment strategies and tools to help meet the challenges of investing during this economic downturn.

Club treasurer David Owen explains that market conditions have been extremely tough over the past few years: ‘We’ve learnt to be very thorough with our research and not to be afraid of altering our investment strategies to match changes in the market.’

With a diverse investment portfolio and a strong track record, it is certainly an approach that has stood the Wolferstan Investment Club in good stead in these uncertain times.

Meeting the right criteria
The club meets once a month, either at a member’s house or in a local pub where, Owen says, ‘good food and
wine, and interesting people, make a lively forum for arriving at the club’s investment decisions’.

Ahead of these monthly meetings, club members use a variety of sources to research investments they believe are worthy of attention. While some members prefer to scour the financial press for inspiration, others will refer to online resources such as advfn.com and share.com for real-time shares quotes, performance charts, the latest business news and investment tips.   

Members usually circulate investment ideas by email a week prior to meeting, before settling on one or two investments that they’d like to present to the club.

‘We look very closely at all the investment ideas brought to our meetings to ensure that they meet the right criteria,’ says Owen. To help decide, the club uses the ‘Piotroski Score’: a stock-scoring system for evaluating a stock’s financial strength using data solely from financial statements.

‘We’ll look at how predictable the earnings are and whether the company can demonstrate a sustainable competitive advantage,’ he adds. ‘We’ll also look at any financial risk the business may be exposed to, what its debt/cash ratios are and whether the shares are being offered at a premium or discount.’

Formulating a strategy
Given the volatility of the markets, the members have learnt to be more reactive in recent years. As such, the club dedicates time in each meeting to look at market conditions and the investment strategy, as well as tools it should adopt to reduce risk and improve performance.

The club also uses stop-losses. Owen explains, ‘They allows us to specify the minimum price at which we’re willing to hold a stock, and trigger the sale of the shares when they reach, or fall below, that price. It is a useful way to help minimise risk, but we’ve found it less effective in a volatile bear market. It’s a good idea to change investment strategies to suit altering market conditions.’

Teamwork is key
The club’s portfolio is diverse, with high street brands such as Tesco and Mothercare rubbing shoulders with aerospace and defence firms like BAE Systems and mobile telecommunications giant Vodafone.

Because the club invests in a wide range of companies from different sectors, it is important to limit the number of investments it holds so they can be managed effectively. Currently, the club invests in 14 companies and one fund – the Martin Currie IF Asia Pacific. 

‘We chose the Martin Currie Asia Pacific fund because we were looking for long-term capital growth from companies based in the Far East. It’s been a good investment for us,’ says Owen.

Other investments that have proved successful for the club include Scottish & Southern Energy, software company Aveva, specialist engineering and manufacturing business Tanfield and Tesco.

So what advice would Owen give to other investment clubs for them to ensure their safe passage through the current economic minefield?

‘At the end of the day, it’s all about teamwork,’ he says. ‘By sharing the work, you’re more likely to share the rewards.’