by Kunle Adeniji

 

An investment club is a coming together of like-minded people who are desirous of creating wealth by pooling their resources together and investing in the capital market, money market, real estate or any other viable business ventures. It is similar to the mutual fund concept. Investments that cannot be individually undertaken giving the enormous cost can be collectively handled via this concept.

 

Common interest brings together friends, colleagues, neighbours etc who share the desire to improve their investing ability. Every member of the club takes active part in decision-making process of investing the pooled resources. It thus not only an investment avenue but also serves as a training ground for even the otherwise less informed investor.

 

Investments clubs have existed for a very long time and have sprung up all over the world. This phenomenon has in recent times, gained prominence in Nigeria following the setting up of The Investment Club Network, Nigeria, an affiliate of the highly successful TICN club of Ireland. However, the concept has quietly been practiced in Nigeria for a very long time.

 

In 1971, about 33years ago, a group of 49 friends set up an investment club known and registered as Investment 1971, with the aim of actively participating in the stock market. These young professionals made up of lawyers, doctors, bankers, accountants, university dons etc decided to contribute £50 per month over a five-year period. At the end of five years, each member had contributed £3,000 (N6,500) each, which amounted to a total of N320,000 in those days. Today, the club has over N200million in assets, after paying dividends and overheads. Similarly, three years ago (2001), a group of University of Lagos professors and senior staff members came together and formed an investment club. Within two years they had doubled their portfolio. Aided by the bullish stock market, their investment yielded a return of 98% in its first year and they were able to pay a dividend of N50,000 each.

 

A common factor that brought these individuals together in these two groups is their interest in the stock market, which buttresses the point that only people of like minds should come together in forming any investment club.

 

Collective brainstorming on investment opportunities goes long way in developing members. Decisions are taken in a democratic fashion. There are however some pitfalls that a club must avoid in order to be successful

 

§         Having a destructive co member within the club

§         Neglecting to have a legal draft agreement and bylaws.

§         Not properly delegating responsibility can be a major albatross for the club.

 

HOW DO YOU START

 

All you need to start a club is for two or more friends who share the same vision and interest to come together and agree to form the club. You need not find all potential members yourself. Once you find a few interested friends, let the other parties invite a few friends of their own.

 

You would need to have the right number of people in your club to achieve your objective. Too few may give you trouble in accumulating the needed funds for investment. Too many and you’d have trouble having useful discussions and finding a place to meet. An ideal number is usually clubs of between 10 - 20 people.

 

There are three probable formats of association that are worth considering:

 

1.      Establishment of independent investment clubs: Like-minded individuals come together to form clubs, which are independently run and distinct from each other.

2.      Second type is to have the independent clusters which are in turn administered and overseen by a central body

3.      A single club with as many members as possible.

 

Once a format is adopted, the next thing to do is organize a preliminary meeting where issues pertaining to how the club will be run would be dealt with.

 

Issues that would need to be considered include:

 

a)                Defining club objective

§         Agree on a common investment goal / Philosophy. Are you interested in the

                                                  i.      Stock market – Buying and selling of shares. Highly risky but very profitable

                                                 ii.      Money market – Which ensures safety of capital. low risk, low return.

                                               iii.      Real Estate – Landed properties, etc.

                                              iv.      Business ventures which could include - setting up a school, Internet café, farming, business centers, medium scale industry etc.

§         What investment horizon does the club have? Is it short term or long term?

 

b)                Name the club

§         This task poses a challenging and interesting task for members.  Usually, a healthy debate is often generated when deciding on a name. Once a name has been chosen, you should also choose the club logo.

§         It is important to have a legally registered company, which would be equally owned by all members of the club. This is a very vital principle, as every member becomes an “equal” owner in the registered company. In addition to this, a legally registered entity also enjoys the benefit of been able to source bank finance if the option of a large or medium scale industry (usually capital intensive) is been considered.

A legally registered company also has the advantage of continuity even in the event of exit or demise participating members. New owners approved by the club can take over shares of exiting member and named next of kin can also assume ownership of demised owner’s interest.

 

c)                 Define membership requirements, dues and contributions

§         What should be the membership number

§         What would be the entry and exit fees?

§         How much will be the monthly contribution?

§         Is there a minimum level of contribution or should a standard amount be agreed upon?

 

d)                Define on operational modalities for the club

§         Apportion responsibility. Appoint leaders who would run the affairs of the club. This would include

                                                  i.      Chairman & or Vice Chairman

                                                 ii.      Treasurer & or Assistant Treasure

                                               iii.      Secretary of Assistant Secretary Etc.

Each official’s responsibility should be clearly spelt out.

 

§         Agree on rules & regulations of the Club (Club Constitution). This should be signed and executed by all members. It must also include relevant penalties for erring members

§         Agree on regular meeting time, place, format & format

 

SUMMARY

 

Given the rising cost of doing business in Nigeria, the concept of pooling resources together to achieve one’s objective has thus become very imperative in our society today. Lets all shed our attitude of “I own this” or “I own that” and begin to work together to achieve our wealth creation objectives.

 

                                               

References:

 

1.                  Networth Magazine (Empowering you to succeed) July 2004 issue

2.                  The Investment Club Network  (TICN) website (www.ticn.com)

 

 

 

Kunle Adeniji is a Finance Graduate of the University of Lagos. He also holds an MBA from the same University. Prior to joining the retail team of Halifax (HBOS Group) UK in 2006, he had over 12years banking experience in the banking industry in Nigeria.