psg online investment club starter pack

An introduction to investment clubs

www.psgonline.co.za Page 1

Shaun van den Berg, [email protected]

Shaun van den Berg, has been with PSG Online for over twelve years now and heads up the client education department.

Shaun is passionate about teaching people how to become successful investors and traders on the share market.

He is particularly interested in using investment clubs as a medium for the man-on-the-street to learn about successful investing, while growing his starting capital in a fun environment with friends and family.

Shaun believes that a successful investment club can only go from strength to strength but it does take time and effort.

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Why invest in the share market? 3Whyjoinaninvestmentclub? 4TheinvestmentClubadvantage 6Joininganexistingclub 7Whyinvestmentclubsfail 7Startinganewinvestmentclub 8Establishyourclubsize 9Invitationtojoinaninvestmentclub 10Theintroductorymeeting 10Yourfirstofficialmeeting 10Regular meeting date, time and location 11Regular meetings - the key to success 11Set your contribution amounts 12Membership responsibilities 13Formapartnership 14Taximplications 14Electofficers 15Safeguardingclubassets 16Openatradingaccount 17Investmentclubrules 17Educationprogram 18Betweenthefirstandsecondmeetings 18Yoursecondinvestmentclubmeeting 19Bookofaccounts 19Philosophy of the investment club 22The importance of a mission statement 23Choosing a strategy 23Theinvestmentclubstrategy 24Thetradingstrategy 24Theinvestmentstrategy 24Createawatchlist 25Prospectingusingthefundamentalanalysismethod 26Prospectingusingthetechnicalanalysismethod 26TheShareSelectionChecklist 26Objectivesofashareselectionchecklist 27Shareselectionshortlist 28Shareselectionusingfundamentalanalysis 28Shareselectionusingtechnicalanalysis 28Conclusion 29

Table of Contents

Appendix A Sampleinvitationform 30

Appendix B New members form 31New members agreement 32

Appendix C Declaration by joining member 33

Appendix D Partnershipagreement 34

Appendix E Resolutionofmembers 39

Appendix F Missionstatement 40

Appendix G Investmentclubrules 41

Appendix H Operatingprocedures 42

Appendix I ShareSelectionChecklist 44


Why Invest In The Share Market?

Investing in the share market can be exciting, even riveting. Prices jump wildly and can double or halve overnight. While investing can be a thrill-a-minute ride, is it really the right place for your savings? What if the markets take a dive? You could lose everything! Would you not be better off parking your hard earned money in a nice safe bank account, or stashing it somewhere secret in your home?

The answer is no! Loud and clear! Are we nutty risk-loving maniacs who advocate investing as a thrilling, if not dangerous pastime? Absolutely not! We are cautious, sensible money makers who want to retire with a comfortable nesteggandhavefiguredoutthatinvestinginthesharemarketisoneofthebestwaystodothat.Sowhatisallthehype about? Let us take a look at the numbers.

Letusassumethatyoustartedinvestingin1985.During1987,theaveragereturnoninvestinginequitieswasonly-46%.Ouch.So,ifyouhadinvestedyourlifesavingsatthebeginningoftheyear,thingswouldnothavebeenlookingtoo good for you by the end of that year. However, if you had remained invested for the long term, your average return wouldnowhavebeenover3105%andthatisincludingthethreemassivedipsinvaluethatyourportfoliotookin1998(-44%),2002(-37%)andmorerecently-46%(2008).Thisstillgivesyouanaveragerealreturnof105%(i.e.workingon15%averageinflation)overthelasttwentyfiveyears!

1987StockmarketCrash

1998AsianContagion

2002DotComBubble

2008Sub-PrimeCrisis

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Why Join an Investment Club?

Takeonestepback,andthisquestionactuallysubdividesinto

• Why invest in shares?• Why do so through an investment club?• Youcanpoolyourresources(i.e.time,moneyandskills)youcandomuchbetterthanthelargeinstitutions.• You can leverage off other people’s time and money.

Theanswertothefirstisoutsidethescopeofthisdocument-sufficeittosaythatinthepastshareshaveprovidedbetter overall returns for investors than bank deposits, and that most observers believe that they will outperform in the futuretoo.Theanswertothesecondquestiondependsonyourpersonalcircumstancesandviewpoint.Peoplejoininvestment clubs for all sorts of reasons, but the main ones are:

• Social - Membership of an investment club turns a solitary pursuit into a sociable one. Meetings take place at members’ homes, in restaurants or pubs, and the conversation is vibrant and convivial. It is more fun than agonising over decisions all by yourself.

• Education - Few people have had any formal education in picking shares and running a share portfolio. Pooling knowledge, brainstorming ideas, and subjecting decisions to the scrutiny of other investment club members is one of the best ways to improve your investing expertise.

• Diversification - A cardinal principle of investing is ‘Do not hold all your eggs in one basket’. Between eight andfifteensharesisgenerallyreckonedtobesufficienttobeproperlydiversified,butifyouhavelimitedfundsthat can spread you a bit thinly. Putting your money in an investment club is one way round this. Your money is pooledwithothers,andtheinvestmentclubcaninvestmeaningfulamountsinaproperlydiversifiedportfolio.

Do you think that a bank savings account can beat that? Think again.While a real return of 30% sounds very impressive,consider that this is thereturnonyour investmentafter factoring in inflation. Ifyouhadputallofyour moneyinahighinterestbankaccount(e.g.8%)bythetimeinflationhascomeintoplay(forthesakeofargumentletussayinflationissetat15%)youmayevenbeworseoff!Areturnof30%aboveandbeyondinflationisprettygoodnews.

Here are a few more reasons to consider investment clubs in the share market as a vehicle for holding and growing your savings:

• Only5%ofthepeopleeverachievefinancialfreedom.• Only10%ofprivateinvestorsinvestdirectlyonthesharemarket.• No one cares more about your money than you do.• Youcangaintheconfidencethroughknowledgeandexperiencetomakeyourownwell-informedinvestment

decisions. For the added excitement of making an informed judgement to invest in, and share in, someone else’s dream and see it unfold.

• Youwilllearnmoreaboutthesharemarket,makemoreprofitsandhavemorefuninasocialenvironment!• Tohavetheopportunityforbetterreturnsthanbanksavingswithsimilarliquidityofyourinvestment.• To diversify your savings and wealth from other stores of value like property, your business, or inheritance, or

insurance products. • A personal interest in business news and the business world. • Enjoying a commonality of interest with other investors. • Becauseyoucannotrelyonthegovernmenttomeetyourfinancialneedstotally;now,orinthefuture.


Ofcourse,youcangetthesebenefitswithoutjoininganinvestmentclub.Onthediversificationissue,forinstance,unittrustsandExchangeTradedFunds(ETFs)existspecificallyforthatpurpose.Butinvestmentclubsareuniqueinprovidingallthesebenefitsinonego.Whereasaunittrustwillchargeyou5-6%ofyourcapitalwhenyoubuyunits,andtake1-2%ofthevalueofyourfundeachyearasamanagementcharge,withaninvestmentclubtherearenocharges as no one is paid for any work they do. This gives investment clubs an important advantage.

Conventional wisdom dictates that the individual investor is at a major disadvantage in the investment arena against the professional fund managers. These big guns of the investment community arm themselves with sophisticated computer models, extensive research departments, and years of investment experience. However, conventional wisdom has been proven wrong on numerous occasions in the past and will be proven wrong again in the future. The thrust behind this “How to start a successful investment club” document is that private individuals can and do outperform their professional counterparts.

Investment clubs are the unsung heroes of the investment world. An investment club is the coming together of people who want to actively participate in both the research and decision-making process of investing money. Typical working(orretired)menandwomenacrosstheworldarejoiningforcesininvestmentclubsandusetheirtalentsand investigative prowess to outperform the market’s top fund managers. An investment club is nothing more than a small groupof individuals,generallyconsistingofbetween10to15members,usuallycomprisedoffriends,co-workers,church members, neighbours or family members. These people then pool a set amount of money and meet on a regular basis, usually monthly for the purpose of investing in an investment club portfolio.

Some investment clubs are started primarily as a social club with investment interests, whilst others are started as a focusedbusinessgroup.Whiletheseinvestmentclubsarecertainlyinterestedinmakingaprofit,membersshouldalsofindthatinvestmentclubsareagreatwaytolearnaboutsuccessfulinvesting.Infact,itisrecommendedthattheseinvestmentclubsfocusoneducationfirstandforemost.Ifinvestmentclubmembersaretooconcernedabouthavingtheirportfolioshowlotsofbignumbersintheprofitcolumns,especiallywhentheyarefirststartingout,theirshare selection is likely to suffer. Investment Clubs that follow this advice and maximise the educational aspects of theirmeetingsusuallyfindthatprofitsfollow.

Investment clubs are a great way for novice investors to learn more about investment strategy fundamentals without putting a large amount of money at stake. In effect, you earn while you learn. The regular periodic investing approach allows you to build up a substantial portfolio over a period of time without having to make a large investment at any one time. You can become a top investment performer in your own right by learning from the amateurs that beat the professionals over and over again. Even more important than improved investment club performance is your opportunity to transfer what you have learnt in your investment club meetings to your own personal share portfolio to improve its performance too.

The diversity of most investment club’s membership brings a breadth of investment experience and knowledge to the group. Remember, each investment club will be rich in diversity. You will meet people from all walks of life, such as medicaldoctors,engineers, telecommunications technicians,plumbers,accountants, financialdirectorsandmanymore.Usethistoyouradvantagetobenefitfromtheresearchandinvestmentopportunitiesbroughttotheinvestmentclubbytheothermembers.Frequentlythisinformationwouldnothavebeenavailabletoaspecificinvestoronhisorher own. After all, there is only so much research and analysis that one person can perform. It is a win / win situation for everyone involved and committed to the investment club process.


Joining an Existing Club

The Investment Club Advantage

Makingprofitsisoneofthemainmotivatorsforsettingupaninvestmentclubandmostinvestmentclubsdomakeagoodprofit.Butthereismuchmoretoaninvestmentclubthanjustmakingmoney.Donotimagineagroupofpeoplewith their heads buried deep in the Business Day newspaper. Meetings tend to be lively, informal affairs normally held in the private room of a pub or at members’ homes. Everyone gets a chance to have their say before the latest investmentsuggestionisvotedon.Althoughsomeclubsmakestaggeringprofits,formostinvestmentclubsitisacaseof getting rich steadily.

Consider starting or joining an investment club if:

• You are new to investing and are looking for a good way to get your feet wet. • You would feel more comfortable learning about investing with others than on your own. • YouhaveroughlyR200toR500availablethatyoucaninvestthroughtheinvestmentclubeachmonth.• You have been putting off learning about investing and sense that having a responsibility to the group would

provide some much-needed discipline. • You think it would be fun to have a group of people with whom to share company research and to discuss

investment topics. • Friends have gently suggested that it would be good for you to get out of the house once in a while.

Furthermore,investmentclubmembersderiveanumberofotherbenefits:

• Profitopportunities - Surveys show that collective investment decisions based on discussion and democratic choicearemorelikelytoproducesustainedprofits.Thepoolingofinvestmentmoneyallowsinvestorstoownawider range of shares than otherwise possible.

• Spreadtheload- Carrying out research into potential investments can be structured and spread amongst the membership. There is safety in numbers. Several people evaluating a share purchase are less likely to make that big wrong decision that decimates the portfolio.

• Informed investments - The collective brain power and experience of people who each have knowledge and experience of different market sectors will produce opinions and information that will guide you to sensible decisions. Sharing investment knowledge and research with others covers a lot more ground than an individual can.

• Low risk - Pooling a relatively small amount of money with others every month will be an ideal way to gain hands-on experience of how the share market works. The low monthly cash outlay is affordable by just about anybody, enabling one to build up an investment portfolio in small, easy pieces.

Investment clubs are not just good for newcomers to investing, though. Also consider forming an investment club if:

• You are an experienced investor, but do not have the time to study as many companies as you would like. (A dozen peoplestudyingandpresentingonecompanypermonthresultin144companyreviews!)

• Youareconfidentinyourinvestingdecision-making,butyouthinkitwouldhelptobeabletobouncethoughtsoffothers and get some additional perspectives.

• You would welcome the chance to learn from other seasoned investors who have expertise in areas you do not know that much about.

Investmentclubsserveasaterrificwayforthosenewtoinvestingtolearnmoreaboutitinafriendlygroupsetting.Manypeopleare terrifiedof taking theirfirst investingstepsand investmentclubsmake this relativelypainless,as members cough up modest sums and invest carefully together after deliberating over the pros and cons of any action. Manymemberseventuallyfindthattheinvestmentclubsguidetheirownpersonalinvesting.Afterawhile,theirequityin the pooled investment club account may be relatively small compared with their separate personal accounts.


Joining an Existing Club

Investment club meetings will offer many good ideas of attractive shares in which to invest and while the investment club may buy a few shares, members often go home and buy more shares for their own trading accounts. You may not have the time to research several shares each month on your own, but by participating in an investment club, you will share in the research of others and have the extra bonus of a group setting in which to discuss investing ideas and issues.

Most investment clubs occasionally seek new members. Perhaps a member is moving away or is just unable to continue. At times like these, new members may be invited to join. You might expect that if an investment club’s accounthasgrownoveradecadeanditsaveragemember’sequityisinthethousandsofRandsthatanewmemberwould be expected to contribute a huge sum of money in order to join. Not true. The accounting systems that the investment clubs use permit new members to merely begin contributing the standard monthly amount. Longer-term members will each retain bigger pieces of the pie, and everyone’s piece is calculated according to how much was contributed when.

Nowthatyoumightbeallfiredupattheprospectofjoininganexistingclub,butthereissomebadnews.Itcanbehardtofindtherightinvestmentclubthatislookingforanewmember.Membersofmanyoftheseinvestmentclubsprobablyalready have some friends they plan to invite. Your best bet might be to ask people you know whether they are in an investment club, and whether they need or anticipate needing any new members.

Onceyoufindaninvestmentclubtojoin,takethetimetolearnmoreaboutitbeforesigningup.Considerquestionssuch as the following:

• Do you get along with the other members? If many of them seem too quiet, loud, obnoxious, young, old, aggressive, meek, or wishy-washy, this might not be the best group for you.

• Do you have goals in common? Perhaps you are risk-averse and want to invest in more stable blue-chip shares, buttheyareouttoaggressivelyfindvolatile,quicklygrowingsmallcompanies.

• Istheregularcontributiontoosteepforyou?R500permonth,forexample,meansR6000peryear.Thiscanbea lot for some people.

• Do you have the same basic investing philosophy? If you are a true long-term investor, you probably would not want to belong to an investment club that relies mainly on technical analysis or that just looks for shares that are going to split, or does not do its own research, preferring to rely on the recommendations of investment gurus.

• Lookforagroupwhereyouwillfitin.Thatiseasiersaidthandone,though.Formanypeople,thebeststrategyis simply to start their own investment club.

Why Investment Clubs Fail

It is rare that an investment club is a bad experience. Most of them are fun and friendly places to learn. Most investment clubsthatarenotsuccessfulfailwithintheirfirstyearorsoofoperation.Typicallythereasonsforfailurecomedownto the same problems, time and time again. If your new investment club can avoid these perils, then your chances of success are much better.

• SameInvestmentPhilosophy - One of the most important considerations is that you should be certain that all of the members of the investment club are on the same wavelength for investment philosophy. Failure to choose an investing strategy and stick with it can lead to the demise of the investment club. All the members of an investment club should agree on their investment objectives and strategies before you get started. If some members of an investment club are interested in ‘playing the market’ rather than a more studied, long-term orientedapproach,theconflicthasthepotentialtoteartheinvestmentclubapart.


The recommended course of action is for the investment club to set their investment philosophy, and then be disciplined enough to carry out that strategy consistently. The investment club that allows a share to be purchased withoutsufficientresearchwillalsolandintrouble.We,againrecommendaShareSelectionChecklisttobeusedas the primary tool for share selection. A completed Share Selection Checklist should be presented for each share being considered for investment. Preferably, each investment club member should be provided with a copy of that Share Selection Checklist for reference during the discussion, as well. Failure of members to pull their weight, and an investment club that allows them to stay, can also be seen as another reason why an investment club will fail. Remember, respect that the investment club is a business.

• AttendanceandParticipation - Another problem faced by many investment clubs comes from not setting minimumattendanceandinvestmentrequirementsformembers.Failuretoshowup,orpayontimeisamajorproblem. Investment clubs are doomed to failure if the members only have a mild interest and therefore do not actively participate. All investment club members must endeavour to keep meetings interesting and focused on solid investment education.

In many cases, investment clubs are too eager to accept a new member into the investment club. This often creates problems, particularly if the new member does not share the investment club’s overall approach to investing, or is not clear on what is expected of investment club members. We suggest that the prospective membershouldfirstvisittheinvestmentclubasa“visitor”foracoupleofmonthsbeforebeinginvitedtojoin.

• Accounting Issues - Finally, failure to expect flawless record-keeping and accounting issues often are problematic, even though investment clubs believe that they are keeping things simple by trying to use the “everymemberhasanequalshare”system.Eventuallytheinvestmentclubwilldiscoverthatthatequalsharesystemhassomesignificantdisadvantages.The‘everyoneequal’systemdoesnotaccommodatethepartialwithdrawalbyamember,incaseofapersonalemergency,forinstance.Italsocanbeverydifficulttofindnewmembers,sincetheamountthathastobeinvestedforanequalsharekeepsincreasing,eventuallymakingthebuy-inamountprohibitivelyexpensive.Mostinvestmentclubsthatstartoutusingtheequal-sharesystemwillprobably convert over to the unit-value system recommended by PSG Online. It is far better to use unit values from the outset.

Starting A New Investment Club

There are many steps involved in getting an investment club up and running, but fret not, most of them are relatively straightforward. Below is a list of steps to help you along. It is fairly thorough, but it is not set in stone as we may well have left out a step or three. The following items are things that you should try to agree on. It might be good to go around the room and get everyone’s thoughts on each of these issues.

Beginwiththerightpeople

There are two schools of thought on how an investment club should go about recruiting new members. There is no rightorwrongaboutthis.Itisreallyaquestionforeachinvestmentclub.

• Keepitpersonal-Thefirstschoolarguesthatitisbesttobringinpeoplewhoalreadyknoweachotherandwhohave some shared experiences. Theoretically, this minimises the risk of a personality clash.

• Cast a wide net - The opposing argument is that it is dangerous to mix friends with money, because if things gowrongyounotonlyloseamemberofyourclub,youalsoloseafriend.Bettertofindmembersoutsideyour immediate social circle, and to build some diversity into the gene pool.

The most important thing in starting an investment club is to start with the right people from the beginning. If not well


thoughtout,itcouldquitepossiblybethebeginningoftheend.Thelastthingyouwantissomeonewhosays‘yes’to be in your investment club only because it was you who asked them. You want people who are interested in investing, interested in learning about the share market, if not downright excited. You also want people that are like youandeasytogetalongwith.Youneedtobeabletoaskquestionsandfeelcomfortabledoingsowiththesepeople.Your members are the key to the investment club. You want to pick the right people, people that you want to have a relationship with for at least several years. The great part about an investment club is that everyone is learning together,sodonotbeafraidtoasksomeonewhohasnoexperienceinthesharemarket.Fromthesillyquestiontothe intelligent, who better than your family and friends? New members wanting to join the investment club must be nominated for membership by an existing member. The new member must complete the New Members Form (See AppendixB), as well as the Declarationby JoiningMember (AppendixC). Provided that there has been no objection, the new member is then warmly invited to become a member of the investment club by accepting the investmentclub’sagreementorconstitution,consentingtotherulesandpayingthespecifiedjoiningfeeandmonthlysubscriptions in accordance with the rules.

Attracting outside members can be done a number of ways. You can advertise in local newspapers, or in PSG Online’s weekly newsletter, or you can post a message on PSG Online’s Facebook page http://www.facebook.com/PSG.Online. From a legal point of view, advertising for members does not mean that the investment club is offering an investment service, an important point, as you would not want the regulators mistaking you for an unauthorised unit trust! Subject to discrimination laws, it is up to founding members on who they allow to join the investment club and who they reject. To avoid insult, it is wise to put the formal criteria for membership in writing, so that there is an objective record of membership eligibility.

The issues such a document would cover are:• How much a member must be willing to invest per month. • Where a member lives• What past experience a member has• How long a member expects to invest for

The vital thing is that there is a ‘meeting of minds’ among members. Investment clubs which start out with a fault lineintheirmembershipwillquicklyexperiencetremorsandevenquakes.Takecaretobuildamembershipthatcan approach its investment as a cohesive force, not a fractured one. It is important that the founder members of a club all attendtheinauguralmeetingsotrytofindpeopleinasimilarlocation

Establish your club size

Asfarasthenumberofmembersisconcerned,thereisnominimum,butinvestmentclubscannothavemorethan20members.Threeorfourpeopleissufficient,butmostinvestmentclubsworkbetterwitheightorten,sincethatwillbuildtheinvestmentfundupmorequickly,particularlyintheopeningstages.Startbytalkingwithfamilyandfriendsandsee who is interested. It is best to gather a variety of people who will bring to the investment club a variety of interests, experiences,andperspectives.Onceyoufindafewinterestedfriends,lettheminviteafewoftheirownfriends.Aimtoformaninvestmentclubwithroughly10to15members,giveortakeafew.Youwanttohaveenoughpeopleforthereto be a decent amount of money to invest collectively to make it worth your while.

You also would like to have enough able bodies to share the workload, but if you get too many, it gets impersonal and youwillhavetroublehavingqualitydiscussionsandfindingaplacetomeet.Therecommendedminimumistohaveten members. Ten is not too big and not too small. Do not assume that you are doomed if your group is composed only of utter novices. That can be a very good thing. Sometimes, if you mix in some sophisticated investors with novices, the sophisticates can get bored or frustrated, and the novices can get intimidated. Do not doubt that a bunch of novices cantacklelearningeverythingtogether.(Remember,youhavealotofresourcestohelpyou).Distributeinformationabout the investment club to anyone who has expressed an interest. You want people to learn what investment clubs


are all about and think about whether they are really interested. Additional members - Additional members may be admitted at any time upon the unanimous consent of the membersinwritingoratameetingsolongasthenumberofmembersdoesnotexceedfifteen.

Invitation to Join an Investment Club

The invitation to attend an introductory meeting should contain the draft partnership agreement and investment club rules,themembershiprequirements,joiningfeesandmonthlycontributions,aswellasthedraftinvestmentstrategy.Select a date for the introductory and informational meeting. You will need to secure a meeting place. A local school or library may have a meeting room available without charge. See Appendix A

The Introductory Meeting

Your First Official Meeting

The introductory meeting is the meeting at which founder members of the investment club get together to make some important decisions. In theory it is preferable for everyone to do some of the preparation work. In practice a few will be enthusiastic and take the leading role. If you mailed out information with the invitation letter, the prospective members should already be prepared. Gather all interested parties for an introductory meeting to discuss:

• Whether you have enough in common.• How you will be organised and run.• Whether people are still seriously interested in forming an investment club.• Discussion and agreement on the name of the investment club.• Discussion and agreement of the joining fee and monthly subscription. • Election of Club President or Club Chairperson, Club Treasurer, Club Secretary, Club Trader and Club Auditor.• Discussion and agreement of the partnership agreement and rules.• Appointment of PSG Online as your online stockbroker and nominee to hold the investment clubs shares.• Appointment of bankers.• Discussion and agreement of the investment strategy.

Beclearontheinvestingstrategy(i.e.tradingorinvesting),andpollthememberstomakesuretheyagree.Answeranyquestions.Takeavotetoseehowmanyareinterested.Ifthereareconcernsorchangestobemadetoanyaspectofyouroriginalplans,thenextmeetingwillbethesecondinformationalmeetingtofinalisetheagreementsandentryrequirements.Butifnooneobjectstotheoriginalplansorrequirements,thenextmeetingwillbetheFirstOfficialMeeting.

Theinauguralmeetingofaninvestmentclubisalwaysanexcitingfirststep.Itisalsothemeetingwhereanumberofkeydecisionsshouldbemade.Atthefirstofficialmeeting,callthemeetingtoorderandgooverthematerialsyouhaveprovided. Have everyone go around the room, introduce themselves and explain why they came to the meeting and areinterestedinjoininganinvestmentclub.Emphasisethatitisnotaget-rich-quickscheme.Explaintheprinciplesofslowwealthbuilding.Askforquestions.Ifpossible,haveanexperiencedinvestmentclubmemberavailabletohelpanswerquestionsthatmaycomeup.Whenthegroupisreadytomovetooperationalprocedures,youwillfindthematerials in this document very useful.

“This is the last chance for anyone to bow out!”


Regular meeting date, time and location

You will need to decide on a regular meeting time, place, length and format for your meetings. Try and make them all the same time every month. Investment clubs hold their meetings in a variety of places. One reason to try and keep aninvestmentclubsizetonomorethanabout15peopleisthatitpermitsmeetingstobeheldinlivingrooms.Otherpossibilities are to seek out some other space, like a local library or church. A coffeehouse or local watering hole, clubhouses, community centres, workplaces and pubs might also work. It is worth giving some thought to this before youstart.Willallmembers(andtheirspouses)behappytohavetheentireinvestmentclubbacktotheirhouse?

Decide when you will meet, and how often. A lot of investment clubs meet on a monthly basis to discuss their portfolio, make buying and selling decisions, and consider changes to the strategy. Investment clubs that meet less frequently,say,quarterly,shouldgiveonepersonorasub-committeethepowertomakeinvestmentdecisionsbetween meetings. Finding a time that works for everyone can be a real challenge, but attendance at meetings is very important to accomplish the investment club goals.

Investmentclubmeetingscanbequiteinformative.Memberscanpresentpotentialsharepurchasecandidates,ortheinvestment club can invite a special speaker such as a stock broker, research analyst, tax consultant, estate planner orotherinvestmentorpersonalfinancespecialist.Fortheformat,outlinethevariousitemsofbusinessyouplantocoverateachmeetingandallocateanamountoftimeforeach.Thiswillhelpyoukeepmeetingsrunningefficientlyand prevent someone’s report from going on for an hour and dragging things out too long. Most meetings will probably last between one and two hours.

Remember, there is also the social aspect of investment club membership. Members are encouraged not to miss investment clubmeetings.Some investment clubsestablisha fineorpenalty ifmembersdonotattenda certain number of meetings during the year. The investment club should meet once per month and serve refreshments after the business portion of the meeting to minimise disruptions. Agree on snacks. Snacks can be a very important part of any meeting. In unfortunate situations, it might even be what meeting attendees look forward to most. Your investment club can choose to bypass snacks or you can decide to take turns bringing crisps or cookies. Some investment clubs hold periodic get-togethers, such as a cheese and wine party or an annual meeting at Sun City or another intriguing spot for example, in addition to regular investment club meetings. Combining the serious investment and social aspects make for a great way to increase your wealth, in terms of both your financial performance and new friendships.

Regular meetings - the key to success

The key to the success of the investment club, both as a savings scheme and as an interesting hobby, is holding and controlling interesting monthly meetings.The typical agenda of a meeting will be:

• Minutes of the previous meeting and matters arising• Changes in the portfolio since last meeting• Club Treasurer’s report - appropriate reports for investment discussion• Reports from people allocated tasks at the last meeting• Discussion and decisions on investments• Any other business• Date, time and location of next meeting


Set your contribution amounts

Atthisfirstmeeting,youwillneedtoestablishtheamountthatwilldepositedeachmonthbyeverymember.Stressthat the amount should be considered “risk capital.” Even though you will be studying hard and are expecting a good rate of return, members should expect losses and not anticipate unreasonable gains.

• InitialJoiningFee-Someinvestmentclubsstartoutwithaninitialinvestmentorjoiningfeeofsay,R500perjoining member, to boost the initial start-up capital. However, if your investment club decides to go with more money, just make sure that everyone is in agreement with the amount and is able to afford the monthly dues.

• MonthlyContributions -We recommend startingwith small, equal amounts.Agreeon theamount of themonthly minimum contribution. You do not have to set this as high as possible. Remember that this is a learning activity, and you can always increase the amount at a later date.

To get an immediate feel for the mechanics of an investment club, consider the following example: ABC Investment Clubisaninvestmentclubwith10members.TheyagreetoeachputinR500atlaunch,andtochipinafurtherR200per month after that.

• At launch-TheunitsoftheinvestmentclubstartwithavaluationofR1.00,somembersreceive500unitsfortheirR500investment.Afterreceivingeveryone’smoney,theinvestmentclubhasR5000toinvest(10xR500).As longas itstays in the investmentclub’sbankaccount,un-invested,eachmember’s500unitsareworthR500.

• Day14-TheInvestmentclubinvestsallitscashinfivedifferentshares.Byluckorskill,thevalueofthesharesriseswithinaweektoR7500(wearebeinggeneroustotheABCInvestmentClub!).Therearestill5000unitsinissue,soeachunitisnowworthR1.50(R7500value/5000units=R1.50assetvalueperunit).Eachmemberhas500ofthem,worthR750(i.e.500xR1.50).

• Day31-Onthelastdayofthefirstmonth,theassetsoftheclubarestillR7500andtheassetvalueperunitisstillR1.50.Onthefirstdayofthesecondmonth,thememberseachputR200intotheinvestmentclub’saccountbydebitorder.(10xR200=R2000).

Here is the clever bit: the number of units they get for theirR200 is notR1.00, butR1.33.That is because the allocationisbasedonthenetassetvalueofthefundattheendofthepreviousmonthwhichinthiscasewasR1.50.(R200/R1.50=R1.33).ThereforetheR2000willnowbuy1504newunitsatR1.33each).Eachmemberwillnowget anextra 150units (R200dividedbyR1.33).Therearenow6504units (5000units plus 1 504units) in the investmentclub,andeachmemberowns650.4units.TheassetsoftheinvestmentclubsareitssharesworthR7500 anditsun-investedcashofR2000.Theinvestmentclubdecidesnottoinvestthecashjustforthemoment.

• Day62-Duringthesecondmonth,thevalueoftheinvestmentclub’ssharesdrops,andbyday62(thelastdayofthesecondmonth)theyareworthonlyR7000.TheinvestmentclubstillhasR2000cashsototalassetsareR9000.With6504unitsinissue,theunitassetvalueisR1.38(R9000value/6504units).

• OnDay63-(thefirstdayofthethirdmonth)the10memberseachputintheirR200.Inreturntheyareallocated145newunits(R200dividedbyR1.38).Onthesameday,anewmemberjoinstheinvestmentclub.HepaysthejoiningsubscriptionofR500+R200forthecurrentmonth,andreceives507units(R700dividedbyR1.38).The10foundermembersnowhave795unitseach(500+150+145).The11thmemberhas507units.Intotaltheinvestmentclubhas8460unitsinissue(5000+1504+1449+507).ItsassetsareR7000insharesandR4700incash.TheunitassetvalueisthereforeR1.38.Andsoitgoeson.Theunits intheinvestmentclubare valued at the end of every month, based on the Investment club’s assets, and the unit price determines allocationsinthefollowingmonth.Theadvantageofthissystem,knownastheunitvaluationsystem(UVS),isthat it establishes a basis on which new members can join and existing members can leave. It is simple, fair and flexible.


Beginning investment clubs shouldmake it a policy to discourage withdrawals within the first few years, but let everyone know they have access to their money if necessity dictates. If new members are added, they do not have to matchthepreviouscontributionsofcurrentmembers;theywillhavepro-ratedsharesintheinvestmentclub’sportfolio.

Contributions to the investment club should not necessarily be the only investment you make. You might be contributing R200 per month to your investment club, but putting aside R1000 per month for your personal savings and investing. Use the investment club as a means of educating yourself, then as a source of investing.

Membership Responsibilities

Who is going to do all the work? An investment club is run for and by all its members, but in practice some members play a driving role and others take more passive roles. Each participant assumes a particular role. You may be the group leader, buyer, or part of a share selection committee. Perhaps you are not good at book-keeping or taking minutes, or you do not fancy being Club President. Answer: Youwill find othermemberswhowill bewilling to do the jobs that do not appeal to you.Andwith an investment club accounting system and portfolio management program, as well as help from your dealer at PSGOnline;noofficer’sjobshouldtakemorethananhouramonth.

Members should be aware that they are all expected to actively participate in the running of the investment club. Activeparticipationcanbespecificallydefinedforaparticular investmentclub.Forexample:groupmembersmayneed to contribute dues / fees monthly, spend time researching and tracking companies etc., give reports to the other investment club members, or participate in other activities related to learning about investing in the share market. An investment club that just retains passive members may be considered as issuing shares and thus have legal and taxconsequences.

Make a list of member interests and expertise. Here is why. As you begin hunting for companies in which to invest, you will want to choose industries to study. As Peter Lynch likes to point out, it is a great strategy to “buy what you know.” (Actually, it is probably best restated as “researchwhat you know.”) If you are in the chemical business, you might volunteer to look into companies in that industry, choosing a few for a closer look. It is a good idea to make a list of the industries with which your investment club members are familiar. Even if someone’s only hobby is hitting the shopping centres every weekend, that is a great boon, they will be familiar with many retailers such as Truworths, Foschini, Mr Price, etc.

Investment club members are therefore responsible for:

• Researching shares and presenting the data to the rest of the group.• Opening a trading account.• Executing trades, either through a broker or online via the electronic trading platform.• Making on-going buy and sell decisions.• Tracking and reporting overall portfolio performance.• Accurate management and reporting of taxes for each member.• Maintainingbuyandsellconfirmationpaperworkandotheradministrativetasks


Form a Partnership

Agree on how you will be organised legally and operationally. This might sound scary, but you should realise that yourR200toR500initialcontributionswillbegrowingintoasignificantpileofwealth.Youwillneedtohaveformalagreements in place to protect yourselves in case one member turns out to be a dastardly demon. One decision to make is whether to form a partnership. For most investment clubs, forming a close corporation is way too expensive and complicated to be feasible. One of the most important documents in an Investment club’s life is its Partnership Agreement. Look at the example of a partnership agreement to get an idea of what your members would like.

Assigning a committee to develop the potential partnership agreement works well as a starting place. Reviewing the agreement with the investment club members will force you to make decisions that will help the investment club functionwellinthefuture.Inmostcasesanattorneywillbenecessarytofinalisethelegalpartnershipagreement.Do not neglect this paperwork issue. Many investment clubs rather choose the partnership route because of tax consequences.

Thepartnershipitselfdoesnothavetopaytaxes,althoughitdoesneedtofileapartnershipreturnwithSARSeachyear. In a partnership, the investment clubs earnings are passed to each individual member, who must pay the taxes on their share. In a close corporation, both the investment club and the members will be taxed. Your choice as to which type of organisation should be based on the tax rates which apply to individuals in your investment club, compared to the tax rate that would apply to the close corporation. Becoming a partnership is easy. All your investment club needs to do is to get everyone in your club to sign a copy of your approved Partnership Agreement and Investment Club Rules. Use them as a guideline, but customise yours to your own investment club. They are lengthy documents which have been used by virtually all clubs in Britain as the basis for their activities and the PSG Online version is now accepted by the company. Indeed, most stockbrokers insist upon seeing a copy of the investment club’s approved Partnership Agreement and Investment Club Rules signed by every club member before they will act for the investment club in transacting share deals. The Partnership Agreement is the legal framework within which the investment clubwill operate. It rarely requires alteration and can only be changedwith the agreement of all members. See Appendix D

Tax Implications

DoestheInvestmentClubhavetopaytax?Investment clubs are not charged Company Tax. The individual member is charged to tax on their proportionate share of any income or gains and is entitled to relief in respect of any share of capital losses.

DoyouneedtoregistertheInvestmentClubwithSARS?TheInvestmentClubTreasurer,Secretaryorotherofficialoftheinvestmentclubshouldnotifythelocaltaxofficeoftheclub’sexistenceandoftheaddressthatofficeshoulduseforofficialcorrespondence.Thelocalofficewillissuetheappropriate letters and forms to that person.

HowdoyouknowwhatyourshareoftheInvestmentClub’sincomee.g.dividendsfromshares,andgainsare?Anappointedclubofficer,normally theTreasurer,willberesponsibleforkeepingarecordof theclubsdealings inshares. He or she will apportion any income, gains and losses between the members in accordance with the rules of the club, and should provide each member with a written statement of these for each tax year.

HowdoyoudeclareyourshareofincomeandgainsfrominvestmentsmadebytheclubtoSARS?Every Investment Club member should declare their apportioned share of income or gains received from investments made by the club on his / her tax return.


Elect Officers

Asyourinvestmentclubbeginstoform,youalsowillneedtomakemoredecisions.Youwillneedtoelectofficers,forexample.TheusualClubPresident,ClubVicePresident,ClubSecretary,andClubTreasurershouldsuffice.Agreeonwhatresponsibilitiesthereare,andwhatkindsofofficersyouwillneedtoelecttotakeontheseresponsibilities.Rememberthatevenregular,non-officermembershaveresponsibilities.Typicalinvestmentclubshave:

• A Club President or Chairperson, who sets meetings, decides the agenda of meetings with the Club Secretary, presides over them, plans activities and makes sure that notices are sent out at the right time. The most important role he or she has is to control the meetings so that they are focused and do not waste unnecessary time in reaching decisions. The Club President or Chairperson should also make sure that the club is operating constitutionally and within its rules.

• A ClubVicePresident,whofillsinwhenneededandmightalsoruntheeducationprogram.• A ClubTreasurer will be responsible for keeping a record of the investment club’s dealings in shares, which

includes the investment club’s holdings as well as each member’s share. The Club Treasurer probably has the most work to do in administering the investment club. He or she is responsible for recording all the transactions of the club and sending out statements to members. Usually the Club Treasurer keeps the investment club accounting records in an Excel spread sheet, and the permanent banking and brokerage records, along with a record of the monthly club valuation and member statements and the annual taxes. (This needs to beacareful,detail-oriented,andresponsibleperson).

• The ClubAuditor - Once a year the auditor takes the previous year’s transactions from the Club Treasurer and checks on the accuracy of the records.

• A ClubSecretary’s role is often combined with that of the Club Treasurer. The Club Secretary is responsible for sending out agendas and minutes for meetings. They are also responsible for safekeeping the original partnership agreement and signature page, a concise record of the minutes of every meeting, along with any correspondence, i.e. resignation letters and letters requesting information from prospective newmembers.The Club Secretary also reminds members of meetings when necessary, and possibly emails out minutes to members who miss a meeting.

• A ClubTrader(whocanalsobetheClubPresident)dealswiththestockbrokeragei.e.PSGOnline,buysandsells shares.

Allclubmembersarerequiredtotrackat leastonecompanyeach.Trackinginvolvesgettingthecompaniesnews releases (i.e. SENS announcements), summarising it in their own words and presenting a quick ten-minute presentation to theothermembers.Eachmember isalso required to trackand reportononenewcompany (not alreadyheld)aspertheInvestmentClubShareSelectionChecklistonceperyear.Eachmembershallparticipateinthemanagementandconductoftheaffairsofthepartnershipequally.Itwilltakeamajorityvoteofthemembershipto buy or sell a share. If you are not present at the time of the vote, you can vote via a proxy email addressed to all members. The vote should be sent in an email to all members. Any member wishing to buy or sell shares between meetings may obtain agreement of two-thirds of the membership and will then contact the Investment Club Treasurer.

DoyoustillhavetodeclareyourshareofanygainarisingfromadisposalofsharesheldbytheInvestmentClubeventhoughthegainhasbeenretainedforre-investmentratherthanbeingdistributedtoyou?Yes, Investment Club members will be chargeable to tax on gains whether such gains are retained by the Investment Club for re-investment or distributed to Club members.


Whilecertainlynotafrequentoccurrence,thereareoccasionswhenaninvestmentclubmemberabscondswiththeinvestment club funds. Safeguarding club assets can be accomplished relatively inexpensively.

• Bank Deposits - Assign someone in the investment club, usually the Club Treasurer, to look into choosing a suitable bank and for opening a joint bank account. It is also recommended that the bank account be linked to the investmentclub’stradingaccountasabeneficiaryviatheInternettomakethetransferoffundseasier,aswellas for accounting purposes. It is suggested that the investment club open a current account with a leading bank for direct bank deposits. It is recommended to use the SMS and email alert service on PSG Online’s website for deposits and withdrawals. It is recommended that the account is operated as a two-signature account. All deposited funds are transferred on a monthly basis with these transfers only done with both signatories present. Only the “Redemption Balance” is always kept in the current. No unauthorised withdrawals allowed.

• Open a PSGOnlineTradingAccount - You will need to discuss the idea of working with a stock broker with the

other members of the investment club. Since in an investment club your group should be calling its own shots, you do not need to pay hefty brokerage commissions to full-service stock brokerages. Discuss the differences betweenfull-serviceandonlinestockbrokersanddecidewhichyouprefer.Selectastockbrokingfirmthatwillhandle your trades and decide whether or not you want a broker dedicated to lending advice to the investment club. For ease of record keeping, share transfer, and safeguarding, all shares must be registered in a “street name” or “Nominee account.” This procedure involves having the broker establish a trading account in the investment club’s name. The purchase or sale of investment club shares will be registered in the brokerage firm’s name (Street name) but recorded in the investment club’s account.The investment clubwill receive confirmationsofthetransactionsviaSMSandemailandamonthlystatementdetailingclubtransactionactivity,plus a listing of portfolio holdings and any open orders. No withdrawals allowed.

TakeadvantageoftheservicesofferedbyPSGOnline(www.psgonline.co.za).Assignamemberoftheinvestmentclub to look into opening a trading account at PSG Online. Each investment club member will have access to the investment club’s share portfolio through the regular communications sent via email or fax from the investment club secretary and at the monthly investment club meetings. However, only the Club President and the Club Treasurer (Trader)mayhavetheauthorisationtobuyandsellshares.

Safeguarding Club Assets

giving their approval of such transaction. A reasonable attempt shall be made to contact all members via phone and email. A reasonable attempt allows for two days of the email sent.

• The investment strategy committee - Some investment clubs, particularly those that only meet once a quarter,appointaninvestmentstrategycommittee.Itsroleistotakeinvestmentdecisionsbetweenmeetings.Ifthe members of the committee believe that the investment club should sell a share, for example, they have the authority to do that without waiting for an investment club meeting.

Investment club rules normally insist on re-election every year, but do not normally prevent any one individual from holdingapositioninsuccessiveyears.Theinvestmentclubsthatworkbestarethosewheremembersfindrolesthattheyarecomfortablewithandwhichfittheirskills.


• Please visit the PSG Online website at www.psgonline.co.za• Click on the LOGIN button in the top right-hand corner. • Once the page has redirected, click on the “REGISTER” button in the top right-hand corner of the page again. • Ontheregistrationpage,findthesectioncalledREGISTERFORANACCOUNT.• ProvideyourIDnumberasauniqueidentifierforyourwebprofile.• As a new user, you will need to provide a username and password. As an existing user, you will need to verify

your username and password.• Confirmyourchoseninvestmentproduct.• Enter your personal details.• Enter your banking details.• Accept the Terms and Conditions.

DocumentsRequired - To open a trading account, PSG Online will need the following from the main member (Club President/Trader):

• Particular schedule• Consolidated mandate• CopyofIDofindividual(i.e.mainmember(ClubPresident/Trader)• ProofofIncometaxnumber(SARS)• Utility bill that proves residential address e.g. water and lights account

The main member must complete a mandate to open a trading account. With the normal mandate a resolution (see AppendixDforexample)mustaccompanythemandatewhichstates:

• Themainmember’snameandidentitynumber.• Themainmember’sbankaccount• AlistoftheinvestmentclubmemberswiththeirIDnumbersandtheirORIGINALsignatures• Copyofeachmembers’IDdocument

Open a Trading Account

Investment Club Rules

The Investment Club should have a constitution and rules, to provide an organisational framework and points of contactforcorrespondenceandofficialnotices.Aconstitutionisalsoessentialtoprotecttheinterestsofinvestmentclub members. This covers all aspects of the running of the investment club. They change from time to time. Many investmentclubsrequiretheagreementof75%ofthememberstochangetherules.Itisuptomemberstodecidewhat goes in these two documents, but it is safest to adopt tried and tested templates used by other investment clubs. The Club Treasurer will apportion any income, gains and losses between the members in accordance with the rules of the investment club, and should provide each member with a written statement of these for each tax year. Investment club members will be chargeable to tax on gains whether such gains are retained by the investment club for re-investment or distributed to investment club members. Every investment club member should declare their apportioned share of income or gains received from investments made by the investment club on his / her personal tax return. See Appendix G


Split up the responsibilities and review everyone’s assignments. Each member of the organising committee should research their respective information and be prepared to explain it at the next meeting:

• The Club Secretary to file investment club entity (i.e. partnership) with SARS. Once received, the Club Secretary to handle publishing information.

• TheClubTreasurertofileforTaxIDNumbers(afternameisacceptedbytheSARS);• The Club Treasurer to open bank account, as well as PSG Online trading account with initial dues. • The Club Treasurer to set up the investment club accounting system in Excel. • TheClubVicePresident/EducationCommitteetopreparetoleadfirsteducationprogram.• The Club Secretary to order the Wen Professional Plus technical analysis software from PSG Online (www.psgonline.co.za)

Everyone should start considering names for the club. You can be straightforward and name the club after something like your geographical region, or you can be creative. One group of women named their club the Stroke ofLuckbecause theyallmetat adoctor’soffice.Their husbandshadhadstrokes, leaving thewomensuddenly needingtotakecontrolofthefamilyfinances

Between the First and Second Meetings

It is very important that over the long-term investment club members want to learn about investing in shares. Investmentclubs thatoperatewith themaingoalofeducating theirmembersabout investingwill find thatprofits naturallyfollow.Someinvestmentclubshaveaseparateeducationofficerorco-ordinator,whichisusuallytheClubVice President,whoisresponsibleforplanning(withthe inputof thegroup)aneducationalprogram.Thiswillnaturallychange a bit over time, as you become more sophisticated investors. But it is important to start out with some kind of plan.Sohavesomeformofeducationalagenda,whichmightincludepresentations,fieldtrips,guestspeakers,andassignedreading.Perhapsyouwanttotakethefirstfewmonthstolearnhowtoreadannualfinancialreports.Ifyouare already comfortable with that, you might delve into various valuation methods. Discuss topics of interest and set up a plan for learning.

Provide informationandhomework for the first share study, or assign readingmaterial suchasbooksor articlesfor thefirsteducationprogram.Topromote investmenteducation, the investmentclubcanask thateachmemberreport on at least one share a year. The reports should be brief and to the point, and preferably accompanied by research information distributed to the other members beforehand. Take a look at the PSG Online Forum on www.psgonline.co.za and choose a share or subject for the first educational segment.A good way to start this discussionmightbetogoaroundtheroomandaskmemberstosaywhatbigquestionstheyhaveaboutinvesting that they would like answers to. If members think this would be too embarrassing, you could all write down lists of thesequestionsanonymouslyandthencollectanddiscussthem.(Nooneshouldbeembarrassed,thoughasyour investmentclubshouldfosteranopenandunintimidatingatmosphere).

Finally, agree to have fun and to keep your meetings friendly and co-operative. Remember, that the main objectives oftheinvestmentclubmeetingsshouldbetoeducateandlearn,tomakeprofitsandtohavefun!Schedulethenextmeeting two weeks away. Adjourn.

Education Program


At the second meeting of club organizers:

1. WriteaMissionStatement(see.AppendixG)2. Develop and / or modify an existing Partnership Agreement. 3. Develop and / or modify an existing set of operating procedures. 4.Develop and / or modify a trading or investment strategy.

It is NOT going to be possible to complete the above in one meeting, so schedule as many organisational meetings as necessary to fully complete these tasks, preferably one week apart. (Note: If you start with a small handful of peoplewhohavebeeninvolvedwiththeentireprocess,youcanskiptotheFirstOfficialMeeting.Ifyouchoosetoaddmembersbefore the investment club is formed,mailingout the final draft of thePartnershipAgreementand OperatingProcedureswillminimisethenumberofmeetingsrequiredtogettheinvestmentclubstarted.Keepreceiptsof all expenses incurred to start the investment club, including mailings. These can be reimbursed out of the initial funds.)

Your Second Investment Club Meeting

Book of Accounts

The Club Treasurer’s book of accounts is important because they give the discussion at the investment club meeting’s a reference point. The books of accounts shall be kept and be available and open to inspection and examination by any member at all times.The key reports are:

• The Cash Account - Movements in and out of the club’s bank account, and the current balance.• The Capital Account - A statement of the units owned by members and the prices at which they were bought /

sold.• The Assets Register - A statement of the cash and shares which the investment club owns. It should be up to

the date of the meeting if possible.

Thefirsttwooftheseareadministrativereportsratherthanreportswhichinforma‘whatshallweinvestin’typeofdiscussion. The third is useful to such a discussion because it shows the current make-up of the investment club’s portfolio.

Thecashaccount-Ainvestmentclub’sbankaccountwillshowbothinflowsandoutflows:

1.Inflows• Monthly subscriptions from members• Dividends from investments• Interest on cash deposits• Cash from shares sold2.Outflows• Purchase of shares• Withdrawals

OneoftheClubTreasurer’smostimportanttasksistoshowallinflowsandoutflowsona‘cashaccount’-akindofledger - and to reconcile it with the bank statement on a monthly basis.


Two principles underlie the cash account:

• Every transaction that the investment club makes is recorded.• There are two halves, Receipts and Payments, and they must always balance to the bank statement.

Cash accounts can be kept manually, but it is a lot easier to use a spread sheet. The investment club can also purchase special software from a number of sources. Whichever method is used, the cash account should show the complete trail of transactions with enough clarity to satisfy the investment club’s auditor at the time of the audit. Although the cash account is updated monthly, the Club Treasurer does not have to run them from the last day of one monthtothelastdayofthenext.Itcanbeeasiertoendeachmonthonthe28thratherthantheactualmonth-end,leaving the last two or three days to go into the next month. The treasurer can then order the bank statement for, say, the7thofthemonthtoensurethattheygetthecorrectbalanceasatthe28th,theendoftheaccountingmonth.

The capital account - The capital account is also prepared monthly by the Club Treasurer. It shows:

• Thenumberofunitseachmemberhadattheendofthepreviousmonth;• Thevalueofunitsinthecurrentmonth;• Thenumberofunitsboughtandsoldbyeachmemberduringthemonth;• The number of units each member had at the end of the month.

The capital account is distributed to all members, so everyone knows what everyone else has bought and sold, and the total number of units they own. Remember that the abiding principle of the capital account is the ‘unit valuation system’. Under this system:

• Whentheinvestmentclubislaunched,unitsarevaluedatR1.00,somembersgetoneunitforeveryR1.00theyinvest.

• Thevalueofunitsisrecalculatedeverymonth,toreflectthereceiptofdividendsandincome,andchangesinthe value of the shares owned by the investment club. The Club Treasurer calculates the unit value by taking the assets of the investment club and dividing them by the number of units already issued.

• Purchases and sales during a month take effect at the valuation at the end of the previous month.

Thereareacoupleofrefinementstothissystem,though,andthefirstis‘InvestmentClubbrokerage’.

• Manyinvestmentclubschargeabrokeragefeewhenmembersbuyunits.Thisfee,say2.5%ofthevalueoftheunitthenpaysforthestockbrokerfeesincurredwhentheclubpurchasesequities.

• Other clubs charge a brokerage fee only when members withdraw money by selling units

The advantage of charging brokerage on selling only is that it covers the cost of selling shares if the Club Treasurer is forced to do that in order to pay the member making a withdrawal. If your club charges brokerage on purchases or sales, then there will be two unit values each month - one is the price for buying and the second is the price for selling whichislowerthanthefirstpricebytheamountofthebrokeragefee.

Theotherrefinementisthetreatmentofsurpluscash.

• Eachmonththememberswillsubscribeafixedamount,sayR200.Thisdividedbythesalespriceofaunitgivesthe number of units each member buys

• The odd amount left after this is called surplus cash, and the Club Treasurer must keep a note of this and add it to subscriptions the following month.


The asset register - The third important ledger kept by the Club Treasurer is the Asset Register. This records the assets of the investment club, including cash in the bank account and its shares. The cash should match the Investment club’s bank statement, and the shares should match the Portfolio Holdings available on the PSG Online website.Note the following:

• Risk analysis - Many Club Treasurers divide the ledger into low, medium and high risk sections, and then list theinvestmentclub’ssharesintherelevantsection.Thishelpsmembersmonitortheoverallriskprofileofitsportfolio, and compare it month by month.

• Sector analysis - Within the same register, it is useful to show the different industry sectors that the portfolio contains.Again,thishelpsmemberstogetaquickunderstandingoftheshapeandbalanceoftheportfolio.

• Valuations of shares - Most investment clubs use the mid-price of the share on the last day of the month to calculate its selling value.

• Surplus cash - Surplus cash (cash put by members into the investment club’s account for which no units have beenallocated)belongstomembers,nottotheinvestmentclub,soitappearsasaliabilityontheregister.

• Shares not yet paid for - If shares are bought towards the end of the month, they may be in the share register but not paid for. In this case enter the amount owed in the ‘Due from investment club’ item.

• Unit valuation - The asset register is what enables the Club Treasurer to produce a unit valuation. Divide the net assets of the investment club by the number of units in issue, and you get the value of each unit.

At the end of each month the Club Treasurer should send a copy of the up to date asset register to each member, along with the month’s cash account and members’ capital account.

Valuation - The current value of the share portfolio of the partnership less the current value of the debts and liabilitiesofthepartnership,(hereinafterreferredtoas“valueofthepartnership”)shallbedeterminedbythecloseof themarket the _____________________(day) before themeeting.This valuewill be determined by theClub Treasurer and will be reported in the monthly email or fax the week before the investment club meeting. It will be discussed as the first order of business in themeeting so the Club Treasurer’s report can be passed.When a member wants to leave the investment club, the investment club will pay the member the value of their share of the club’s investments. And the occasion of the member’s departure represents a disposal of their share of those investments forcapitalgainstax(CGT)purposes.

To calculate the chargeable gain on this occasion, the member will need to deduct from the amount they receive from the investment club the total of:

• The sums the member has paid into the investment club from time to time, and • Theamountsofincome(netoftaxortaxcredit)andgainsallocatedtothememberforeachyeartheywerea

member, adjusted for • Any losses allocated to the member each year, and any sums paid out to them by the investment club in the

past.


When establishing an investment club, one of the most important things for the members to decide is the investment club’spurposeorphilosophy.Ifallthemembersareinterestedingettingrichquickly,theinvestmentclubisnottheanswer. If, on the other hand, members view it as a chance to learn over the years about selecting and making wise investments, the investment club is a great way to accomplish this goal. To make your venture into an investment club successfulyoushouldcommittoatleastfiveormoreyearsinvolvementwiththeclub.

Investing in the share market is a long-term proposition and one that should not be taken lightly. Forming an investmentclubmeansgoingintobusinesswithtentofifteenotherpeopleyoutrustandwilltrustyouinreturn.Someother goals investment clubs might have are to make new friends and to have fun. Opportunities for new and lasting friendships abound at the local investment club level and can branch out to activities at regional and national levels.

Justasanindividual’s investmentphilosophiesandstrategiesvaryaccordingtotheperson’sage,financialstatus,financialcommitments,investmentgoals,andriskposture,thephilosophiesandstrategiesofeveryinvestmentclubwill also differ depending on its membership. Similarly, just as individuals adjust their share portfolios as they move through their life cycles, investment clubs also adjust their share portfolio selection process over time as members age, some people retire from the investment club, and new blood joins the ranks of investment club members. For those unfamiliar with life-cycle investing, it is an investment strategy that adjusts the risk posture of share portfolio holdings as the person moves through his or her career and life cycle.

For example, younger people with many more years until retirement can afford to assume a higher risk position because they have time to recover from any losses suffered early in their investment cycle. On the other hand, people nearing retirement and needing current income to sustain a comfortable lifestyle should assume a more conservative riskposture,movingfromamajorityofgrowthinvestmentstoalargerpercentageoffixed-incomeinvestments.

Whether you are an individual investor or a member of an investment club trying to earn respectable portfolio returns, it is crucial to your success that you develop and implement an investment strategy aimed at achieving your investment goals. Too many investors purchase a share on the recommendation of other people without any consideration of how itfitsintotheiroverallstrategyorhowitwillhelpachievetheirdesiredinvestmentgoals.

With this in mind, we encourage investment club members to adopt an investment philosophy that includes the following points:

• Invest a set amount regularly, usually once a month, regardless of market conditions. This helps you obtain lower averagecosts;

• Reinvest dividends and capital gains immediately. Your money grows faster when earnings are reinvested through thepowerofcompounding;

• Buy growth shares i.e. companies whose turnover are increasing at a rate faster than the industry in general. Thesesharesoffergoodprospectsforcontinuedgrowthandhigherdividendsandshareprices;and

• Investindifferentindustriesanddifferent-sizedcompanies.Properdiversificationhelpsreduceriskandincreaseopportunity for gains.

Whileinvestmentclubsarecertainlyinterestedinmakingaprofit,membersshouldalsofindthat investmentclubsare a great way to learn about successful investing. In fact, we sincerely recommend that investment clubs focus on educationfirstandforemost.Ifclubmembersaretooconcernedabouthavingtheirshareportfolioshowlotsofbignumbers in the profit columns, especiallywhen they are first starting out, their share selection is likely to suffer. Investmentclubsthatfollowthisadviceandmaximisetheeducationalaspectsoftheirmeetingsusuallyfindthatprofitsfollow.

Philosophy of the Investment Club


Theinvestmentclubsthatestablishaninvestmentphilosophy,goals,andspecificstrategiesforimplementationcanand do outperform the top fund managers and the market averages! It was reported in the Wall Street Journal, that morethan60%ofinvestmentclubsintheUnitedStatesproducelifetimeaveragecompoundedannualreturnsequalorbetterthanthesharemarket.Thatisimpressivewhenyouconsiderthat75%ofallprofessionalfundmanagersfailto beat the market averages every year.

The importance of a Mission Statement

Why is a mission statement so important for your investment club? If you are an experienced investment club member, you know the answer to this. If not, here are a few good reasons. When you get your initial investment clubmemberstogether,itisimportanttohavethesamefinancialgoalsfortheinvestmentclub.Someofyourinitial members may want to jump in and out of shares to make a fast buck. This is contrary to what an investment club should be as successful investment clubs buy and hold shares for the long-term. This is why the sample of the investment club mission statement below clearly states that investment club members must perform a share selection checklist and gain approval of a majority of partners. By performing an analysis of each company they look at, the investment club prevents someone from coming in and wanting the investment club to purchase a share on a hot tip. Without this process, no vote on whether to purchase the share or not can go ahead.

It is also important that the investment club recognise the four investing principles. If your investment club agrees on thesefromtheoutset,itwillsavealotofconflictintheinvestmentclubinthefuture.Makesureyouputthemdownon paper and vote them in as a club. You would not regret it. If your investment club has a mission statement like the one below, things should go much smoother down the road. See Appendix F

Investment club members need to agree on what type of strategy they will use when buying or selling a share. Therearetonsofdifferentstrategiesandinmostinvestmentclubsthathavestarted,thisstephasrequiredthemost discussion. “How should we invest?” “What is our strategy?” “How can we form a strategy when we do not know how to invest?” First of all, make sure that all investment club members have similar or compatible investing goals. If some people want to double their money in two years and then get out, that is not only unrealistic, but also probably at odds with those who want to learn and slowly grow their savings.

To the degree that you can, agree on some common ground regarding a general investing strategy and approach. Wewould sincerely suggest that the investment club first consider studying the FREEOnline Trading Course available on the PSG Online website. The course theory covers everything that a novice investor would need to make an informed investment decision based upon fundamental and technical analysis, as well as prudent risk management strategies.

If you want more knowledge, you can also read anything written by Peter Lynch or Warren Buffet as to their approach to investing. You may want to have each of your fellow members read a book and share the different strategies until you come up with one that works for your investment club. As an example, perhaps you agree that Warren Buffett’s approach is one you would like to incorporate or emulate, as great books to start the conversation. Agree on a set of common-ground references, instructions, tools, and / or readings. Peter Lynch’s One Up on Wall Street, Beating the Street,andLearntoEarnaresomeotherfineworksthatisrecommendedreading.

Perhapssomememberswanttofindsignificantlyundervaluedshares,whileotherswanttofindhigh-flyingshares.Differences do not necessarily represent a death knell, but it is good to start out knowing how everyone feels. And besides, many investment styles are not diametrically opposed.

Choosing a Strategy


WesuggestusingtheInvestmentClubStrategyforatleastthefirstyearthentweakitasyoulearnmore.Checkitout and see if it works as well for your group. Maybe someone in your investment club has read something else that they found informative.

Firstly,themembershavetoagreeupontheinitialinvestmentorjoiningfee(e.g.minimumR500permember),andthenthemonthlycontribution(e.g.R200orR500permonth).Thesedecisionswilldeterminetheflexibilitythattheinvestment club has and ultimately how fast the funds in the investment club will grow. This decision will also contribute largely towards which of the two suggested strategies the club chooses.

Next, there are investors and traders. Traders are in this for the short term and quick profits. Investors, on theother hand, use their share portfolios to build their retirement funds, and are therefore, in this for the long term. Investment club members should then all decide whether they will have a “trading portfolio”, an “investment portfolio” or a combinationofboth.Itissincerelysuggestedthatforatleastthefirsttwoyears,theinvestmentclubbuildupsufficientfundsorcapital.Forexample,oncetheinvestmentclubhasbuiltup,sayR100000infunds,memberscouldthendecidetosplittheshareportfoliointotwoinaratioofeither60/40or70/30.Allocatethemajorityoffundstothe“buyand hold or investment strategy” and the lesser amount to a “trading strategy”.

The Investment Club Strategy

Someinvestmentclubshaveashort-termview.Itmaybetomakeahighdegreeofprofitsinaveryshortperiodoftime,e.g.days,weeksormonths.Thesestrategiesemployedbysuchinvestmentclubscanbeclassifiedaseither“jobbing” or “swing-trading”.

• JobbingorDay trading is a strategy enjoyed by bold speculators who seek a high degree of excitement from their stock exchange dealings. This strategy is basically the exact opposite of ‘buy / hold’, which is discussed later. Jobbing is the process of jumping in and out of shares, often taking advantage of very small price movements.Withjobbing,youwouldbuyinat9.00a.m.andselloutbytwelvenoon!Itis,however,generallya very expensive way of operating for two important reasons. Firstly, the tax authorities will have no hesitation in classifying you as a share dealer. Furthermore, because you will be trading very actively, you will be paying substantialamountsintheformofbroker’sfees.Jobbingrequiresthatyoualsokeepyourearconstantlytotheground and have an in-depth knowledge of the market. This can be very time consuming.

• Swing trading is a more leisurely approach to jobbing. In terms of swing trading you climb in at the bottom of thecycleandjumpoutatthetopofthecycle,switchingyourentireequityinvestmenttothemoneymarket,andawaiting the next opportunity to climb in at the bottom. With swing trading, you may do two to three trades per year. In this strategy, your timing must be spot on. In theory it sounds great, but in practice only the fortunate few get their timing absolutely right.

The Trading Strategy

Other investment clubs will have a much longer-term perspective and they aspire to steady growth in dividend income and dividend growth, as well as capital growth over time. This is done through ownership of a well-balanced and well-selected portfolio of shares that are considered to be reasonably secure. These investors can generally be classified as “buy& hold” investors.A share portfolio is constructed and adjustments onlymadewhen absolutely necessary. This is a very sound strategy for any investment club, provided that thorough research has been done and awell-diversifiedshareportfoliohasbeenputinplace.

The Investment Strategy


Within this investor group, there are 3 investment types:

• Momentum Investor: The investor uses technical analysis to gauge price movements. Buy and sell decisions arebasedoninvestorsentiment,somethingverydifficulttoquantify.

• Growth Investor: Fundamental analysis is used to determine whether a company is a worthy investment, such asgrowingsalesandearnings,solidprofitmargins,andfuturebusinessprospects.

• ValueInvestor: This investor also uses fundamental analysis, but concentrates on different numbers. Value seekers are mainly looking for companies that have very low valuations (e.g. Based upon the PEG ratio or P/NAVratio)orthathavestumbled.Verycheapsharesaresoughtwithsignsthattheymaybecomingback.

Themostsuccessfulinvestmentclubsprefertousefundamentalanalysistofindverygood-qualitycompanies,thathave growing turnover and earnings, and that have a future so bright that they can buy them today and not sell them for a number of years. Then they hold on through thick and thin, as long as the fundamentals remain strong. This is called a buy-and-hold, growth strategy. In the medium to long term a buy / hold strategy will almost always outpace inflationbyaconsiderablemargin.Theinvestmentclubalsoavoidsexcessivebrokeragecostsandthepossibilitythatthemembersareclassifiedassharedealersbythetaxauthorities.Thisisthetypeofinvestmentobjectivegenerallyheld by pension funds and long-term savings plans.

These two strategies will help the members of the investment club decide on an investment strategy. Remember, do not start investing until your investment club has decided what their strategy is going to be. Take your time on this step. Once a strategy has been formulated and accepted, then the members of the investment club must stick to it. Everyone must vote.

Manynoviceinvestmentclubmembersareatalossatchoosingtheirfirstshares.Tosimplifyacomplextopiclike successful share market investment, we have designed a few simple processes or steps to help investment club memberschoosetheirfirstshares.Tobegininvestingonthesharemarket,membersshouldaskthemselveswhattheyhopetogainbyitorwhatistheirmainfinancialobjective?Hopefullytheyansweredthattheywouldlike to make money!

• In the share market, an investment club’s main objective should be to maximisewealth! So begin with the end in mind and then work backwards!

• How do you maximise wealth on the share market? On the one hand you maximise wealth bymaximisingreturns, while on the other hand you maximise wealth by minimising risk.

• Before an investment club can make money on the share market, the members will need to create a share portfolioofgood,qualitysharesthatoffergreatgrowthpotential.Thegoaloftheinvestmentclubistocreateabalanced portfolio, using portfoliomanagementtechniques that will help them maximise returns (i.e. portfolio strategiessuchasbuy&hold,swingtradingorjobbing),aswellastominimiserisk(i.e.portfoliomanagementtoavoidlosingmoneysuchasdiversification,portfoliostructureandstoplossstrategies).Remember,thatitisnot as important to make capital gains as it is to avoid capital losses!

• Next, before the members of an investment club can have a balanced share portfolio they will need to gain more knowledge about shareanalysistechniques. There are two schools of thought - the one being fundamental analysis(i.e.lookingatthefinancialstatementsofthecompany)andtheothertechnicalanalysis(i.e.lookingatthechartsforthecompany).Combinethetwoformsofanalysistogether,andyouhavewhatcanbecalledrationalanalysis. The more informed the members are about a certain industry, sector and share, the better their success on the share market will be!

• But before the members can do any share analysis, they will need to create a watch list of interesting looking shares. It is not so much the amount of capital they have to invest on the share market that is important, but

Create a Watchlist


more importantly, how much time they have available to invest on the share market! It is impossible to follow the events of every single listed share as an individual investor as you will feel overwhelmed with information andgocrazy!Rememberthatleveragingotherpeople’stimeisoneofthemainbenefitsofaninvestmentclub.

• To create a watchlist, members will need to go through a “prospecting” phase. As they gain more knowledge andexperienceonthesharemarket,theywillstartrefiningthisprospectingprocessandadaptittotheirriskprofile, theiravailable timeand the investmentclub’sstrategy thatwillhelp themtoachieve the investmentclub’sfinancialgoals.

The whole process starts off with the prospecting process to create a watch list, from which members will do further share analysis to create a balanced portfolio that will maximise returns and minimise risk, so that they can make money or maximise wealth!

This fundamentalanalysismethodmeansthekeepingofafinancialdiary, inwhichyouwouldrecordthefinancialyear-ends of all the companies that may interest you. It is suggested that a bi-annual book like the JSE Digest wouldbeusefulinprovidingthisinformation.Youwouldthenanticipatewhattheirfinancialresultswouldbebyfirst lookingattheirpastfiveyearperformancesandthenestimatewhattheresultswouldbelikewithinthecurrenteconomic climate. Would it be “good” or “better than expected”? If you anticipate good results and you believe that the market in generalhasnotpickeduponthisyet,thenyouwouldgetinnowbeforethe“crowd”.Remember,thefinancialresultsareusuallyonlyprintedinthefinancialpresstwotothreemonthsaftertheirfinancialyearend.Thisgivesyouthatshort window of opportunity to make some money fast!

Alternatively, you could subscribe to the research facilities available on the PSG Online website. Research tools such as the Value and Quality Filter save a lot of time as it helps to narrow down the choice by using 12 fundamental searchcriteria.TheCompanyAnalysisisaonepageresearchdocumentoneveryfinancialandindustrialshare,which providesallthepertinentresearchinformationaninvestorwouldrequiretomakewell-informedinvestmentdecisions.

ProspectingusingtheFundamentalAnalysisMethod

The technical analysis method of prospecting for shares involves the “scrolling” through of charts using various technicalanalysisindicatorstofindsharesthatare“oversold”orpresentingabuyingopportunity.Forexample,youmaybe looking for shareswhere thepricemustbeabove its21&40-daysimplemovingaverages (i.e.bullish),while the Relative Strength indicator is outperforming relative to the JSE Overall Index. Subscribe to the DataShare download from PSG Online and receive the Wen Professional Plus charting software absolutely FREE! This technical analysis software will help the Investment Club track the market, as well as all the shares that the Investment Club may be interested in.

VisitthePSGOnlinewebsite(www.psgonline.co.za)formoreinformation.

ProspectingusingtheTechnicalAnalysisMethod

Many investment clubmembersarequitewilling topartwith their hard-earnedmoney, invest in a share,without knowingeventhebasicsaboutthecompany,itsfinancialyear-end,marketcapitalisation,etc.Bynowmembersoftheinvestment club should have narrowed down their choice of shares and have included them in their initial watch list. Now they need to do some share market analysis and this is where the homework comes in! Share analysis consists ofthetwoschoolsofthought-fundamentalandtechnicalanalysis.TheShareSelectionChecklist(SSC)isapaperform that aids individual investors in the fundamental and technical analysis, as well as the selection of shares. The relatively-simple form enables investment club members to identify the characteristics of a growth shares, and plot

TheShareSelectionChecklist(SSC)


potential future growth from the historical trends. The SSC also helps an investor determine a reasonable value for the share, suggesting purchase when the share is temporarily on the cheap side of a value assessment.

The SSC offers simple steps used as benchmarks in helping investment clubs to determine which companies are strong shares and which ones are not so able-bodied and should be avoided. This is only what PSG Online suggest an investment club use, and is not the be-all and end-all method to getting into the share market. However, it is simple, andwethinkthatinvestmentclubswillbesuccessful.Itrequiresaninvestortoapplyhisorherownjudgementtomanyfactors in the analytical process. The SSC can be an important aid in discovering those shares which are most likely toincreaseinvalueoverthenextfiveyears.

While the SSC may seem simplistic to many seasoned investors, it is imperative that both novice and more advanced investment club members document their share selection criteria and details of holdings. Professional fund managers eachhavetheirownsetofinvestmentrequirementsandinvestmentcriteria.Thisisusuallydocumentedandformsthe basis of their investments into listed shares. Likewise it is important that investment club members set out their specific investmentcriteria. If the investmentcriteriaare“Wewillonlybuyshares incompaniesthatstartwith theletter Y, then do not even look at Barloworld or MTN Group.” This will eliminate “hot tips” from the neighbour, or dart throwing. For each investment that a professional fund manager makes, the research analyst compiles a research report. This research report contains at the bare minimum the details in the SSC. The following tutorial attempts to demystify the Share Selection Checklist, to explain its components step-by-step, and to point out areas where an investor’sjudgementshouldbecarefullyapplied.WhilethistutorialfocusesspecificallyontheSSC,aspecialefforthas been made to emphasise the tenets of long-term, growth share selection that any investor may utilise.

ObjectivesofaShareSelectionChecklist(SSC)

Two investors can complete an analysis of the same share, using the same data, and their conclusions might be so different that an outside observer would not recognise that the same company was being analysed. Why? Because share selection is highly dependent on the opinions of the person completing the form. There are many opportunitiesforinvestorstoapplytheirownjudgement,makingdecisionsaboutthecompany’sprospectsthataffectthefinal outcome.TheShareSelectionChecklist(SSC)isnotasubstitutefordoingresearchonashare;itismerelyatoolthatnarrows the focus on some of the most important aspects of successful companies.

In addition, each investor will have different goals that the share must reach to be a candidate for purchase, which can affect the outcome of the analysis. Even when using the Wen Professional Plus charting software or the fundamental research facilities available on the PSG Online website to facilitate analysis according to these principles, an investor must always use his or her experience and knowledge in determining a reasonable expectation of a share’s future performance. The keys to successful share selection are to understand the conclusions of your analysis, and to learn to apply your own best judgement to those areas which demand input.

The rationale behind the SSC method of analysing shares can be summed up fairly simply in two parts:

• Companiesthathaveperformedexceptionallywelloverthepastfiveortenyearscanbeexpectedtocontinuetoperformwelloverthenextfiveyears.Inpracticalterms,thismeansthatitispossibletoquantify(tosomedegree)thesuccessorfailureofacompany’smanagement.Ifacompanyhasgrownrevenuesandearningsconsistentlyatanannualaveragerateof,say,15%overthepasttenyears,andthesamemanagementteamis in place at the company, then we can reasonably expect similar growth in the future.

• The second objective is simply to determine a reasonable or fair price to pay for a share with such prospects.

This method of stock selection is ideally suited for investment clubs with a long-term, “buy and hold” strategy who are seekingsharesthatwillreturnanaverageof15%ayearoninitialinvestment.Sharepriceappreciationanddividendyieldaretakenintoaccountindeterminingtheshare’spotentialreturnoninvestment,andquantifiedontheform.


The share selection shortlist gives the investment club members a better idea as to how they should approach share selection. Through a process of elimination, the members have now arrived at a list of shares that show certain minimum winning characteristics. These are the shares that are the gold nuggets or the companies that show great growth potential!

Firstly,lookatallsharesthathaveoperatingprofitmarginsgreaterthanfivepercent.Listallthoseshareswhichhaveproducedanincreaseinheadlineearningspershare(HEPS)ofover15%.Thebestcompaniesarethosethatareableto generate large increases in headline earnings per share. Next, list all those shares (which meet the first two criteria)thathaveaPrice/NAVratiooflessthantwo.Thiswillensurethatthesharesincludedintheshortlistarenot overvalued.

Next, listallsharesthathaveaROE%greater than15%.Thehigher theROEthehigher theP/NAVshouldbe. Finally,listallsharesthathaveaninterestcovergreaterthanthreetimes.Thismeansthattherearesufficientprofitstopaythecurrentinterestchargethreetimes.Thisisnormallytheminimumcoverrequiredfromaninvestment.Thisisoneofthemostimportantratiostoconsiderforfinancialrisk.Thereareenoughuncertaintiesregardingthefutureofa company and there is no need to invest in companies with a higher risk of possible bankruptcy.

ShareSelectionusingFundamentalAnalysis

We suggest that you use the Wen Professional Plus charting software to look at all shares that are trending up in price(i.e.bullishtrendbaseduponcycleanalysis,support&resistancetrendlines,aswellasmovingaverages)eventhough it may be at or near its 12-month price high. The last thing that an investment club would want is to invest in a share that is moving down. Review the price graph in order to see where the current price is trading. Within the bullish trend,findsharesthatarealsoatthebottomofacycle(i.e.oversoldbaseduponvarioustechnicalindicatorssuchastheOverbought/Oversold,Stochastic,RSIandMACDindicators).

Next, look at the share’s volume and calculate whether it is free-dealing or liquid, as well as confirm volume accumulation using the VolumePriceTrend (VPT) indicator. Look at whether the share ismarket outperforming relative to the JSE Overall index based upon the Relative Strength indicator. (Note: The Wen Professional Plus is set upwiththistechnicalindicatorsalreadyasaQuickTemplate,aswellasHiLitercriteria),andfinally,onlyifthereisabuysignalonthePointandFigurechart,aswellasapriceconsolidationofatleastsix(themorethebetter),thencalculate a price target. This helps to calculate the reward / risk ratio.

The result will be a shortlist of shares, which can be studied further. This is by no means a fool proof method of share selection, but it does give investment club members a better idea as to how to go about it. After studying the market for a while, the investment club may want to select shares using their own selection criteria

ShareSelectionusingTechnicalAnalysis

Share Selection Shortlist


Investment clubs are a sociable way to do your investing, they are a great way to brainstorm ideas and share knowledge, and they can also be good for your wallet. But, as with any enterprise that mixes friends and money, it is important that everyone understands the ground rules before you start. That means making sure that members are in it for the same reason, that they agree on the investing strategy and objectives, that there are no personality clashes, and that you have a competent Club Treasurer to manage the accounts and produce statements.

If you get these elements right, your investment club has every chance of thriving as a unit. Then all you have to do is pick the best shares! We hope that this document has provided you with useful information to get your investment club started and on the road to making wealth.

Happy trading and good luck!

Conclusion


APPENDIXA-SAMPLEINVITATIONThis is an actual letter written to prospective investment club members. It is very important to work on a non-threatening letter when starting an investment club. Hopefully this example will help. This letter can be usedinconjunctionwiththeNewMemberInformationSheet.(AppendixB)

(INSERTDATE)

For the following Prospective Investment Club Members:

LIST OF NAMES

To our Family and Friends:

We are in the process of starting an Investment Club. Yes, that is right. The great thing is that we would like each of you to be the founding members. You may be thinking right now that you know nothing about shares or investing, so you cannot join. That is the beautiful thing about this investment club. We are all relative novices at investing, so we can all learn together in an Investment Club.

But you do not have enoughmoney. No problem there either.At our first meeting we will decide onmonthlypayments,buttheywillbenomorethanR500perpersonpermonth.Thatisaboutaverageforaninvestment club. But you do not have the time? We will have one meeting per month that will last about 1½ to 2 hours. Not bad, huh? You will be expected on occasion to do some share research. We will all learn how.Thatmaytakeacouplehoursatfirst,thenabouta½hourwhenyouknowwhatyouaredoing.Alltherestofthedetailswecanfigureoutlater.Webothwantthistobeafunactivitywherewecanalllearntogether, and make some money in the stock market without much risk involved.

The IntroductoryMeetingwill be (DATEANDTIME) at our (ADDRESS).PleaseRSVPeither of us at(PHONE)intheeveningwhetheryoucanmakeitornot.Evenifyouthinkyouarenotinterested,pleasecome. You may be persuaded. If you want to join but cannot make the meeting for other reasons, we will get you the minutes from the meeting. Hopefully at least one person from every couple can make it, but I would like everyone to make it if possible.

NO MONEY WILL BE NEEDED AT THE FIRST MEETING.

Looking forward to hearing from you…this will be fun!

SIGNED

____________________________


APPENDIXB-NEWMEMBERSFORM

Full name and surname of joining member: ________________________________________

ID No: _____________________________________________________________________

Postal Address: _____________________________________ _____________________________________ _____________________________________ _____________________________________

Physical Address: ___________________________________ ___________________________________ ___________________________________ ___________________________________

Contact No: _______________________________________

Work No: _______________________________________

Email Address ______________________________________________________________

The above named was nominated for membership of the ____________________________

investment club at a meeting held on __________________________ and there has been no objection is warmly invited to become a member of the club by accepting the partnership agreement, consenting to the rules andpayingthespecifiedjoiningfeeandmonthlysubscriptionsinaccordancewiththerules.

Signed_________________________(Clubsecretary)Date________________________


FullName&Surnameofjoiningmember:

Postal Address:

Home Contact: Work Contact: Cell Contact:

Email Address:

Theabovenamedwasnominatedformembershipofthe(_________________)InvestmentClubatameetingheldon__________________________________ and there having been no objection is warmly invited to become a member oftheinvestmentclubbyacceptingtheconstitution,consentingtotherulesandpayingthespecifiedjoiningfeeandmonthly subscriptions in accordance with the rules.

Signed(ClubSecretary)

Date:

Declarationbyjoiningmember

1. Ihavereceivedandreadtheconstitutionof(_____________________________________)InvestmentClub.2. I agree that the affairs of the Investment Club shall be conducted in accordance with the letter and spirit

of the constitution and I agree to abide by the rules and any amendment thereto made in accordance with clause18oftherules.

3. I agree to pay a joining fee of R_________ which entitles me to a number of units in the club as calculated by the Club Treasurer using the same unit price as applied to valuations for existing members for the relevant month. Thereafter individual valuations will be provided in accordance with the rules.

4.I agree to pay a monthly subscription of R_________ by standing order into the investment club’s account. 5.Iwillendeavourtoattendandparticipateintheclubmeetingsandrespondtootherwrittenreasonablerequests

concerning club business.

Signed(JoiningMember)

Date:

New Members Agreement


APPENDIXC-DECLARATIONBYJOININGMEMBER

1. I,_________________________(newmember’sname)havereceivedandreadthepartnershiprulesofthe__________________ investment club.

2. I agree that the affairs of the investment club shall be conducted in accordance with the letter and spirit of the investment club.

3. I agree to abide by the rules and any amendment thereto made in accordance with clause of the rules.

4.I agree to pay a joining fee of R ________ ____ which entitles me to a number of units in the investment club as calculated by the present club treasurer using the same unit price as applied to valuations for existing members for the relevant month.

5.Thereafter individual valuations will be provided in accordance with the rules.

6.I agree to pay a monthly subscription of R ________ ____ by a standing debit order into the investment club’s bank account and in accordance to the club rules.

7.I will endeavour to attend and participate in the investment club meetings and respond to other written reasonablerequestsconcerningtheinvestmentclubbusiness.

Signed _________________________ Date ________________________


The Partnership Agreement is a binding agreement of rules and conditions between the investment club members on how the investment club will mutually operate and conduct its business for the purpose of joint investment in shares and derivatives. To be legally binding the constitution of the investment club has to be signed dated and witnessed by all investment club members. The following is a copy of the constitution and rules recommended by PSG Online for adoption by investment clubs.

APPENDIXD-PARTNERSHIPAGREEMENT

1. FormationofPartnership: The undersigned hereby form a General Partnership, in, and in accordance with the lawsoftheRepublicofSouthAfrica(RSA).

2. Name of Partnership: The name of the partnership shall be the ____________________Investment Club, here after referred to as the “Club”.

3. Term: The partnership shall begin on _____________________ and continue until __________________, and thereafter from year to year unless earlier terminated as hereinafter provided.

4. Purpose: The purpose of the partnership is to invest the funds of the partnership solely in shares for the education andbenefitofthepartners.

5. Membership: Members to the investment club will hereafter be referred to as “Partners.” The number of people inaninvestmentclubshallbelimitedtoaminimumof3toamaximumof20partners.

6. Additional Partners:Additionalpartnersmaybeadmittedatanytime,upon75%consentofallthepartnersinwritingoratameetingsolongasthenumberofpartnersdoesnotexceedfifteen(15).

a)Acceptanceofnewpartnersintotheinvestmentclubshallbeproposedandsecondedbytwoexisting partners and adopted only if no other partner objects. b)Theinvestmentclubreservestherighttorefuseadmissiontoanypersonwithoutgivingareason. 7. InitialJoiningFee: On admission to the investment club, a new partner shall pay a joining fee, as decided by the

partners at the inaugural meeting.

8. MonthlyContributions:The partners may make contributions to the partnership on the date of each periodic meeting, in such amounts as the partnership shall determine, provided, however, that no partner’s capital account (ashereinafterdefined)shallexceedtwentypercent(20%)ofthecapitalaccountsofallpartners.

9. Valuation: The current value of the assets and property of the partnership, less the current value of the debts and liabilitiesofthepartnership,(hereinafterreferredtoasthe“valueofthepartnership”)shallbedeterminedasoffive(5)businessdaysproceedingthedateofeachperiodicmeeting.Theafore-mentioneddateofvaluationshallhereinafter be referred to as “valuation date.”

10.CapitalAccounts: There shall be maintained in the name of each partner, a capital account. Any increase or decrease in the value of the partnership on any valuation date shall be credited or debited, respectively, to each partner’s capital account on said date. Any other method of valuating each partner’s capital account may be substituted for this method provided that said substituted method results in exactly the same valuation as previously provided herein. Each partner’s contribution to, or withdrawals from, the partnership shall be credited, or debited, respectively, to that partner’s capital account.

11.Management: Each partner shall participate in the management and conduct of the affairs of the partnership in proportion to his / her capital account. Except as otherwise provided herein, all decisions shall be made by the


partners whose capital accounts total a majority in amount of the capital accounts of all the partners. The voting systemis“onepartner=onevote.”Investmentclubpartnersacknowledgethatthesoleownershipofallequity appreciationshallresidewithonlythoseinvestmentclubpartnerswhohavefulfilledallobligationsassetoutinthispartnership agreement.

12.Meetings: Periodic meetings shall be held as determined by the partnership. An acceptable level of partner’s attendanceeachyearshallbedetermined(normally75%+).Partnersareentitledtoattendallmeetingsandvoteonallmatters.Ameetingquorum(normallyofhalfmembership,plusone)shallbeagreed.Thosepartnersthatattendtheinvestmentclubmeetingsregularlywillbenefitmorethanthosepartnersthatdonotcomplywiththe expectedinvestmentclubattendanceof45outof60monthlyinvestmentclubmeetingsduringafiveyearperiodand theexpected researchofonecompanypermonth.Amutuallyagreeduponfinesystemwillbe institutedagainst any partner who constantly misses club meetings.

13.Research: As well as attending investment club meetings, all partners are expected to commit to researching at least one company per person per month using a recommended system of company evaluation. Those partners thatcompletetheirresearchassignmentstimeouslywillbenefitmore.

14.Minutes: Minutes of the investment club meetings shall be kept and issued promptly to partners at least two weeks or as soon as practicable prior to the next meeting by the Investment Club secretary via email or fax.

15.ElectOfficers:Electionofallofficers(President,Treasurer,Secretaryandotherroles)needstobedecided.Alsotwointernalauditorswhoarenotofficebearerscanbeappointedtoaudittheinvestmentclubaccounts.

a)The Club Treasurer at the AGM shall produce a statement of accounts. A report detailing the income, expenditure, investment club assets, arrears, end of year valuation of portfolio, and each partners total contribution / drawings with current value of holding shall be presented to investment club partners at all meetings.

b)Anauditor’sreportshallbepresentedtoinvestmentclubpartnersattheAGM.c)The investment club bank account / brokerage account can to be determined annually or at a special meeting.Allmeetingdatesandvenuesfortheyearneedtobeagreedbymembers.Betweenfivetotendaysnotice should be given for all meetings.

d)ThegoalsandfinancialaimoftheinvestmentclubshallbestatedincludingacomprehensivereviewofAssetAllocation.

e)Members’monthlycontributionsshallbestatedandmaybereviewedupwardsinlinewithinflation.

16.SharingofProfitsandLosses:Netprofitsandlossesofthepartnershipshall inureto,andbeborneby,the partners in proportion to the valuation adjusted credit balances in their capital accounts or in proportion to valuationunitbalances.Allmembershaveanequalamountofshareholdingintheinvestmentclubportfolio.Nomember is entitled to buy additional units.

17.BooksofAccount: Books of account of the transactions of the partnership shall be kept and at all times be available and open to inspection and examination by any partner.

18.AnnualAccounting: Each calendar year, a full and complete account of the condition of the partnership shall be made to the partners.

19.BankAccount: The partnership shall select a bank for the purpose of opening a partnership bank account. Funds depositedinsaidpartnershipbankaccountshallbetransferredbyeitheroftwo(2)partners(i.e.ClubPresidentandClubTreasurer), designatedby thepartnership.Alternatively,monthlydebit ordersmustbesetupbyall partners for payment of their subscriptions directly into the investment club trading account as soon as possible after joining and not exceeding three months of joining the investment club.


a)Allchequesdrawnontheinvestmentclubaccountshallrequireanytwoauthorisedsignatures.b)Allincomewillbepaiddirectlyintotheinvestmentclub’sbankaccount.c)Theinvestmentclub’sbankaccountmustbesetupwithoutoverdraftfacilities.

20.TradingAccount: The investment club shall open an investment club stock broking account in the investment club’s name with PSG Online. Appoint between two to four traders (normally not the Chairperson / Treasurer / Secretary).Noneofthepartnersofthispartnershipshallactasthestockbrokerfortheinvestmentclub.However,the partnershipmayselectastockbrokerandenterintosuchagreementswiththestockbrokerasrequired,forthepurchase or sale of shares. Shares owned by the partnership shall be registered in the partnership name unless another name shall be designated by the partnership.

a)AnycompanyorTransferAgentcalledupontotransferanysharestoorfromthenameofthepartnershipshallbe entitled to rely on instructions or assignment signed or purporting to be signed by one of two designated partners (i.e.ClubPresidentandClubTreasurer),selectedbymajorityvoteof thepartners,without inquiryas to the authority of the persons signing or purporting to sign such instructions or assignments or as to the validity of any transfer to or from the name of the partnership. At the time of transfer, the company or transfer agentisentitledtoassume(1)thatthepartnershipisstillinexistenceand(2)thatthisagreementisinfullforceand effect and has not been amended unless the company has received written notice to the contrary.

b)Onlythenamedtradersareauthorisedtobuyandsellinvestmentsonbehalfoftheinvestmentclub.c)Nomemberisauthorisedtocommittheinvestmentclubbeyondthecashheldbytheinvestmentclubbrokerd)All cheques due to the investment club’s account are to be made out to the investment club’s name on non-transferablecheques.

21.No Compensation: No partner shall be compensated for services rendered to the partnership, except reimbursement for expenses.

22.Voluntary Termination: The investment club shall be wound up and all assets divided among members in accordancewitharesolutiontothateffectifpassedbyatleast75%ofthepartnersataspeciallyconvenedgeneralmeeting of the investment club. The partnership may be dissolved by agreement of the partners whose capital accounts total a majority in amount of the capital accounts of all the partners. Notice of said decision to dissolve the partnership shall be given to all the partners. The partnership shall thereupon be terminated by the payment of all the debts and liabilities of the partnership and the distribution of the remaining assets either in cash or in kind to the partners or their personal representatives in proportion to their capital valuation accounts.

23.WithdrawalofaPartner: Any partner may withdraw a part or all of his / her capital account. He / she shall give notice in writing to the recording partner. When a partner resigns they will receive their share of the investment clubholdings(minuslegal&brokeragefees)infullpaymentwithin90-daysofresignation.His/hernoticeshallbedeemedtobereceivedasofthefirstmeetingoftheclubatwhichitispresented.Ifnoticeisreceivedbetweenmeetingsitwillbetreatedasreceivedatthefirstfollowingmeeting.Inmakingpaymentthevaluationstatementpreparedforthefirstmeetingfollowingthemeetingatwhichnoticeisreceivedwillbeusedtodeterminethevalueof the partner’s account. Between receipt of notice and the withdrawal valuation date, the other partners shall have and are given the option during said period to purchase, in proportion to their capital accounts of the partners wishing to exercise this option, the capital account of the withdrawing partner. If the other partners do not exercise their option to purchase, then the partnership shall pay the withdrawing partner the value of his / her interest in the partnershipasshownbythevaluationstatementinaccordancewithparagraph20ofthispartnershipagreement.

24.Deathor IncapacityofaPartner: In the event of the death or incapacity of a partner, receipt of such notice shall be treatedasanoticeofwithdrawal. Liquidationandpaymentof thepartner’saccount shall precede in accordancewithparagraphs18and20.Theirsharevalueof the investmentclubholdingswillbepaidtotheirexecutor(minuslegal&brokeragefees)infullpaymentwithin90-daysoftheinvestmentclubmeetingwherethedeath was recorded.


25.Purchase Price: Upon the death, incapacity or withdrawal of a partner, and the exercise of the option to purchase by the other partners, said other partners shall pay the withdrawing partner or his / her estate, as the case maybe,apurchaseprice,whenpaymentismadeincash,equaltoninety-sevenpercent(97%)ofhis/hercapital account, ifwithdrawal ismadewithin the first five (5) yearsof a partner’smembership in theClub, or 100% thereafter,lesstheactualcostofsellingsufficientsecuritiestoobtainthecashtomeetthewithdrawal.Paymentwillbemadewithin60daysofreceiptofthenoticebythepresidingpartner.Inthecaseofacompletewithdrawalinliquidationofapartner’sentireinterest,paymentmaybemadeincashorsecuritiesattheoptionoftheremainingpartners of the Club. In the case of a partial withdrawal of a partner’s interest, payment may be made in cash or securities at the option of the withdrawing partner. If the partner desires an advance payment, the club at its earliest conveniencemaypayhim/her80%oftheestimatedvalueofhis/heraccountandsettlethebalanceof the account inaccordancewith thevaluationdateset inparagraph18.Wherepayment ismade insecurities, theclub’s broker shall be advised that the ownership of the securities has been changed at least by the valuation date used for the withdrawal.

26.Taxation: Tax affairs shall be dealt with accordingly to the law of the land.

27.Disputes: Any disputes to the interpretation of the partnership agreement will be decided by the Investment Club Chairperson/orattheAGM/orifrequestedataspecialgeneralmeeting.Disputesrelatingtothevaluationofapartner’sshareshallbedecidedbyacharteredaccountant(appointedbytheInvestmentClubChairperson),who’sdecisionwillbefinal.Feesforthecertifiedaccountantwillbemetbythelosingpartyorequallyifnocleardecision is made.

28.DividendPolicy:Afterfiveyearsfromtheformalinaugurationoftheinvestmentclubthemembersshallconveneameetingtodecideuponandadoptadividendpolicyforthenextfiveyearstobereviewedandadjustedannuallythereafter.

29.AmendmentstothisAgreement:Thisagreementmaybeamendedatanytimebyseventyfivepercent(75%)majority in amount of the capital accounts of all the partners.

This Agreement of Partnership is hereby declared and shall be binding upon the respective heirs, executors, administrators and personal representatives of the partners.


INWITNESSWHEREOFthepartieshavesettheirhandsandsealstheyearanddayfirstabovewritten.

Partners Name Partner Signature


APPENDIXE-EXAMPLEOFRESOLUTIONLETTER

ABCInvestmentclub

We, the undersigned as members of ABC Investment club hereby nominate _________________________________ as the main member and contact person for trading.

The banking details that will be used are:

Bank : _______________________________ Branch : _______________________________

Branch code : _______________________________

Account number : _______________________________

Name of account : _______________________________

InvestmentClubmembersthatresignhavetogivenoticequarterlyduetomarketfluctuationsandtheothermemberscan decide whether to buy his / her shares in the club or nominate another member in his / her place.

JOE BLOGSID:6234579455889660

SUSAN STROOMPIEID:5465457889798787

GERDA WERDAID:6454878776543265

SIPHO NGAKULAID:7258988445698254


APPENDIXF-SAMPLEMISSIONSTATEMENT

The_____________________(name)InvestmentClubfollowstheserecommendedinvestmentprinciples, which are:

1. Invest regularly, regardless of the market outlook.

2. Reinvest all earnings.

3. Invest in growth companies.

4.Diversify to reduce risk.

The investment objective of ____________________ (name) InvestmentClub is to double ourmoneyeveryfiveyears.Todoso,ourinvestmentclubmustaveragea14.90%compoundedannualgrowthrate.

Inorderforacompanytobeconsideredforapurchasebythe________(name)investmentclub,apartnermust show:

1. A completed Stock Selection Checklist for the company.

2. Majority approval by the partners to purchase the said share.


APPENDIXG-INVESTMENTCLUBRULES

1.Theinvestmentclubwillonlydealwiththeinvestmentclub’sinvestmentandforthebenefitoftheinvestmentclub only. It will neither advice nor deal on behalf of any person / group.

2. No partner shall be compensated for services rendered to the partnership, except reimbursement for expenses.

3. Have the right or authority to bind or obligate the partnership to any extent whatsoever with regard to any matter outsidethescopeofthepartnershipbusiness.Nopartnershallmakeanycommitmentparticularlyfinancialonbehalf of the investment club without the agreement of a properly constituted meeting

4.Withouttheunanimousconsentofalltheotherpartners,assign,transfer,pledge,mortgageorsellallorpartof his / her interest in the partnership to any other partner or other person whomsoever, or enter into any agreement as the result of which any person or persons not a partner shall become interested with him / her in the partnership.

5.Purchaseaninvestmentforthepartnershipwherelessthanthefullpurchasepriceispaidforsame.

6.Usethepartnershipname,creditorpropertyforotherthanpartnershippurposes.

7.Doanyactdetrimentaltotheinterestsofthepartnershiporwhichwouldmakeit impossibletocarryonthe business or affairs of the partnership.

8.Allaffairs(conduct,behaviour,attendanceofpartners,monetary,etc.)affectingtheinvestmentclubshallbeagreedbythepartnersataconstitutedmeeting.Themeetingmusthaveaquorumofatleast50%plusone.

9.Anypartnerwhobreakstheserulesandconditionswillbeexpelledafterawarninghasbeenissuedandwhen75%ofpartnersataconstitutedmeetingsupportthedecision.Theexpelledpartnerwillbenotifiedinwritingandhavetheirshareoftheinvestmentclubholdingsreturned(minuslegal&brokeragefees)infullpaymentwithin90-daysofexpulsion.


Complete the following steps before deciding on a method to pay off investment club members:

1. Review the Club Partnership Agreement to ensure that the terms of the agreement are followed. 2. List the payout options for each individual partner.3. Calculate the costs involved with each option.4.Select the best option for your investment club’s circumstances.5.Note:TheReceiverofRevenueSouthAfrica(SARS)indicatesthatafinaltaxreturnfortheInvestmentClubmustbefiledwithin3-1/2monthsofthefinaldissolution.Thiscouldpresentaproblemiftaxsoftwareisnotavailable for the current year. One suggested alternative is to have one member retain money in the investment club account until the end of the year.

PayoutOptions

1. The member receiving the transferred shares opens an account with the same broker as the investment club uses, and the broker transfers the shares to the member’s account

2. A broker can transfer shares to a member’s account at a different broker.3. A broker can facilitate the transfer of shares to an account in the name of the investment club (which will be in aformsimilarto“JaneDoe,Treasurer,XYZInvestmentClub”).JaneDoeendorsesthetransfertothememberreceiving the shares.

Option 1 is likely to be least costly (usually free), and other optionswill probably involve various fees for share transfers.Askyourstockbrokerwhatisrequiredtocompleteasharetransfer(notarizedsignaturesfromallinvestmentclubmembersmayberequiredbeforeasharetransfercanbecompleted.)

MethodsofTransferringShares

APPENDIXH-OPERATINGPROCEDURES

InvestmentClubDissolution(WindingUp)Procedure

1. Sell all shares and pay all members in cash. 2. Transfer shares to members for most of their value in the investment club.3. Sell any shares that are showing a loss so that all members participate in the tax advantage, and transfer

appreciated shares to members for most of their value in the investment club.

Costs

1. Sell all shares and pay all members in cash: The direct cost is the broker’s commission. In addition, if your investment club has large capital gains, members incur a taxable event in accordance with their percentage holdings in the partnership.

2. Transfer shares to a member for most of his or her value in the investment club: Transferring shares may involvesomecostsaswell;however,themembercanavoidanimmediatecapitalgain.Thismethodcanbeareal advantage although it is more complicated than an all cash payout.

Question your stockbroker at PSG Online carefully about this option. If you are using an online broker, get instructions inwritingthatsoyouhavedocumentationofthestepsthebrokerrequires.


Amemberwishing towithdraw from thepartnershipmustsubmita letterof resignation toanyoneof theofficersatleast48hourspriortothecommencementofascheduledmonthlymeeting.He/shewillatthistimeforfeittheir privilege of attending the scheduled monthly meetings. The withdrawing member will be obligated to pay their dues withoutfineforthethreemonthsfollowinghis/herresignation.He/shewillbereleasedfromthisobligationatsuchtimeasanewpartnerhasassumedhis/herfinancialpositionortheremainingpartnershavepurchasedtheshares.When shares must be sold to pay the withdrawing partner, said partner is responsible for all fees and expenses pertaining to the sale of the share. It shall be sold no later than the _______________ following the third scheduled meeting after his / her resignation was accepted. The withdrawing partner’s funds will be transferred via electronic transfer within three working days of the Club Treasurer receiving the funds of the transaction. The share value will be the current value most recently reported before the settlement takes place minus any outstanding obligations. If a partner withdrawswithinthefirstyearoftheclub’sinception,he/shewillonlybereimbursedthelesserofeither1/10thoftheclub’sworth(ortheirequalshareiflessmembers)or,ofhis/hertotalduespaidduringtheirtime.Theywillnotbe entitledtoanymarketgainsduringthefirstyear

Withdrawal of member

Withdrawal of member

Upon the death of a member, the investment club will buy their membership. The members shall pay the withdrawing memberortheirestate,asthecasemaybe,apurchasepriceequalto97%oftheircapitalaccountortheircapitalaccount less the actual cost of selling the shares, whichever amount is smallest. Settlement shall be paid within two weeks of the valuation date used in determining the purchase price.


ShareSelectionChecklist#1-FundamentalAnalysisShare Info Valuation Profitability FinancialRisk Recommendation

Share Name Share Code

PE Ratio

PEG Ratio

P/NAV Operating Margin

ROE Cashflow/HEPS

Interest Cover Buy / Sell / HoldSpec Buy / Buy LT


ShareSelectionChecklist#2-TechnicalAnalysisShare Info Valuation Profitability Volume Relative

StrengthRecommendation


Cycles Moving Averages

Support& Resistance Levels

Trend Lines

Overbought&Oversold

AccumulationDistribution

Outperform&Underperform

Buy / Sell / HoldSpec Buy / Buy LT


ShareSelectionChecklist#3-PortfolioManagementShare Info Portfolio Structure

(NumberofShares)PortfolioSpread PortfolioStop

LossRecommendedPriceRange


Large Cap? Mid Cap? Small Cap? Industry Sector


ShareSelectionChecklist(SCC)ShareName&ShareCodeDate:

Nature of the business:

Financial Year End: Date Financial Results Expected:Sector: Sector PE:Share Price: Share PE:EarningsYield(EY%) DividendYield(DY%)

TurnoverGrowth%:GrossProfitGrowth%: GrossProfitMargin%:EarningsGrowth%:PEG(PE): PEG(NAV):Price / NAV:ROE%:Cashflow/EPSInterest Cover:Management Comment:

Long-termtrend(Weekly)Short-termtrend(Daily):Support levels:Resistance levels:

Moving Average Crossover:OB / OS:RSIBuy&SellZones:RSI Crossover:StochasticBuy&SellZones:Stochastic Crossover:MACD:Volume Analysis: Free-dealing?OBV: VPTRelative Strength Analysis:JSE Overall?Sector?Peers?

Point&Figurepriceprojection?Buy?Sell?Watch?Hold?

psg online investment club starter pack

Documents

share market

appendix g investmentclubrules

successful investing

appendix e resolutionofmembers

appendix f missionstatement

appendix c declaration

appendix h operatingprocedures

appendix b new members