With Christmas fast approaching amid a fog of economic gloom, The Share Centre’s Nick Raynor has some ideas for investment clubs looking to restore some profit to their portfolios

Christmas could prove a subdued affair following a year of stock market gloom, but there could be some bargains out there providing investors do their research, according to Nick Raynor, investment adviser at The Share Centre.

Despite the Bank of England opting to cut the base rate by 150 basis points, retail sales were reported to have fallen for the fifth consecutive month in October and by the biggest amount in more than three years. The British Retail Consortium said like-for-like sales values were 2.2 per cent lower than in October 2007. This marked the biggest fall since May 2005.

Bad timing
‘The decision to cut rates couldn’t have come at a better time for retailers, who are supposedly facing the worst Christmas for 30 years,’ suggests Raynor. ‘We do expect to see some improvement once rate cuts trickle down to consumers as they will have more cash to spare - lower mortgage repayments and interest paid on loans and credit cards.’

But, as Raynor points out, investors shouldn’t necessarily shy away from the retail sector: ‘Although investment clubs could be forgiven for writing off retailers this Christmas, those currently looking to pick up cheap shares in well-known high street stores could use the current economic climate to their advantage.’

He adds, ‘However, given the difficult trading conditions, it is more important than ever for investors to do their research, which can be ideally split if you’re investing as an investment club.’

Investment clubs open up a much wider spectrum of opportunities for private investors and allow access to a breadth of knowledge. This, and the advantage of having a combined stake in a portfolio, limits the amount of individual exposure to one particular share.

So, by investing in this way, members can take much higher risks when picking stocks. Raynor explains, ‘Investment clubs offer a great way to share both the risk and rewards of investing, as well as the hard graft.’

The past will guide you
When it comes to the retail sector, Raynor advises investors to look at past performance of the stock. This won’t dictate what is going to take place in the future, but it could give you an idea of how that particular company has performed in comparison with its peers.

‘Those looking to invest in retailers at present should definitely look at how they have performed over the past six months and, in particular, how they have performed against others in the sector,’ adds Raynor. ‘Also, the recent rate cuts should help improve the bottom lines of many retailers; Marks & Spencer has already said its interest bill for 2009 will be cut by £50 million.’

But Raynor believes that investors should perhaps focus on those companies that will benefit from the difficult times that consumers are facing during the festive period. ‘Clubs may want to consider one-stop shops this Christmas, as they often benefit from consumers having less time and money to spend. Stores such as Tesco often benefit from increased sales in food and drink as well as clothing, toys and technology gadgets.’

Concentrating on the basics
So far, Sainsbury’s has shrugged off the wider retail gloom to post a 13.3 per cent hike in half-year profits, reporting underlying pre-tax profits of £272 million in the six months to October.

Meanwhile, its arch rival, Tesco, has been tipped as the British company best placed to weather a recession and emerge stronger by accountant and business adviser BDO Stoy Hayward and retail analyst Verdict.

When it comes to research, there are lots of different ways to investigate how a company has coped financially over the past few months. Most clubs opt for the internet or newspapers as their first port of call, but as we approach the festive season, Raynor suggests there could be an alternative.

‘Clubs could look for those retailers who are launching big advertising campaigns and opening late in the run-up to Christmas. Think about those stores that are still expanding or making in-store improvements – these could all be signs that they are doing well financially.’

He adds, ‘And think back to those which have done well throughout the year, which have successfully launched new products or which have an ongoing best-seller – if you have been following toy or gadget reviews you may even be able to predict the next big Christmas seller.’

Don’t be dazzled by the yield
Just because you are investing as a club doesn’t make you immune to losses. It is just as important to make sure the decision your club has made has been well thought through. ‘Clubs should avoid buying shares on spur of the moment decisions, and shouldn’t be swayed by low valuations or high dividend yields alone – they are likely to be this way for a reason,’ explains Raynor.

However, stock market doom and gloom doesn’t have to impact your club’s festive season. Most investment clubs are made up of friends, and the social aspect is just as important to most as the money-making part.

And Raynor is convinced that is certainly a good thing. ‘Investing as a club has a great social appeal, so use it to your advantage.

‘Most clubs consist of four or more members so you should all have knowledge and experience of several retailers you use on a day-to-day basis or at specific times of the year. Get together and discuss what you have learnt about recent retail successes and the changes your local stores are making.’

However, it is important that you don’t get too carried away with the festive frivolities. Raynor concludes, ‘Do your research, set stop-losses and price limits, and stick to your agreed investment strategy.’