investment club national conference 2007 get your club a strategy dave gaskell rolling stocks...

INVESTMENT CLUB NATIONAL CONFERENCE 2007

Get Your Club A Strategy

Dave GaskellRolling Stocks Investment Club


Outline We’ll cover 3 questions• Why bother having a Strategy?• What should it cover?• When you’ve got one….

……what should you do with it?


?Why have a Strategy?

Makes it clear what our club is there forActs as a terms of reference to make sure we remember

why we’re in our clubSets out how we’re going to measure whether we’re

meeting our objectivesMakes it clear what approach, attitudes and values the

club wishes to adoptAllows all club members to shape how the club operatesSets direction and provides discipline …..

….without unduly stifling flexibility and creativityGives new potential members a guide to what our club

believes


What Should It Cover?


Objectives

? To Make Money through investment

• to beat the FTSE 100…….• whilst protecting against significant losses……• ….yet having opportunity to speculate

To Learn• about a variety of sectors (e.g. IT, Transport, Retail, etc.)• about a variety of investment products (e.g. Shares,

Warrants, Bonds, Options, etc.)• about a variety of markets (e.g. FTSE, Aim, Overseas)

To Have Fun• being a member of the Club• at Club meetings• especially where this also aids learning or can make money (e.g. entering competitions)


Timeframe

Considerations:-• Is there a date in mind when you want to

distribute funds or wind up the club?• Over what time period do you want to

measure your performance?• Given that your club probably meets

monthly, will this influence your decision making?


Timeframe

Overall target is to beat the FTSE 100 on a year-on-year basis.

Investments should not be purchased without an expectation of a future sale.

There is no pre-determined wind-up date for the Club.


Types of Trading

• What sort of investment vehicles does the club want to or not want to trade in. – UK listed shares?– Overseas shares?– Investment Trusts & Funds?– Warrants?– Options?– Commodities (ETFs)?– Spread betting?– Alternative investments (fine wines, etc.)?


Types of Trading

The primary investment vehicle for the Club shall be shares in common stock as tradable on the FTSE market but no investment vehicle available through the Club’s broker is specifically excluded.

Trading should be such that holding periods are expected to be longer than 2 months (i.e. short term “day trading” is not within the Strategy of the Club)


Types of Analysis

• What sort of analysis does the club want to or not want to use. – Technical Analysis / Charts?– Mechanical Selections / Stock Screeners?– Fundamentals?– Growth Stocks?– Value Stocks?– Income Stocks?– Contrarian?


Types of Analysis

Three Sub-PortfoliosSpeculative Investment Sub-Portfolio Analysis based on identification of speculative selections that

could make quick and/or very significant returns on investment and/or assist in the Club’s education

Fundamental Investment Sub-Portfolio Analysis based on examination of company fundamentals,

appreciation of business area and recognition of growth opportunities or intrinsic value

Mechanical Investment Sub-Portfolio Analysis based on unemotional, mechanical application of

clearly defined selection criteria to identify investments that are sound and relatively defensive yet which are still capable of capital growth and provision of income


Money & Risk Management

Considerations:-• Do you want to limit how much should be in any one holding?• Do you want to limit how much should be in a single sector?• Do you want to limit how much should be in a single

investment type/class/vehicle?• Should there be a limit on how much is held in cash?• How much should be spent on any individual buy?• How much should be allocated to speculative punts?• How much should be spent on meeting any non-financial

objectives?• How will you measure that these criteria are being met?• What will you do if you breach your limits?


Money & Risk Management

0-25% in Speculative sub-portfolio25-50% in Fundamental portfolio40-70% in Mechanical portfolio 0-25% in cash (excluding cash in the Mechanical sub-portfolio)At least 75% of assets should be in common UK stocksNo more than 40% of invested assets should be in any one sectorNo more than 20% of invested assets should be in any one stockLowest of £300 or 1% assets to be annual learning budgetLowest of £300 or 1% assets to be annual “fun” budgetTrading amounts should be such that dealing costs in any one

trade (buy or sell) are less than 3%.


Entry Criteria

• Are there any particular criteria that must be met before a purchase can be made. For example:-– Proposal supported by at least 2 members?– Been tipped by at least 2 tip sheets?– Proposal form completed and agreed by all members?– Random pin in the FT– Has attributes that pass a stock screener – Displays inverse head and shoulders, hockey stick, etc– Only buy companies beginning with a “B”?– Don’t buy between May and September?– Etc?


Entry Criteria

An investment can only be purchased for the Club if it clearly satisfies the Entry Strategy for one of the three sub-portfolios Fundamental : Full Buy Proposal form filled in

and accepted by majority vote

Speculative : “Lite” Proposal form filled in and accepted by majority vote Mechanical : Passes our filters/screener and is

highest ranked, unheld candidate


Exit Criteria

• Are there are rules/criteria that will help you decide when are you going to sell? For example:-– Trailing stop loss?– Sell after 12 months?– Change of fundamentals?– Head and shoulders?– Proposal to sell is supported by a majority of

members?– Etc?


Exit Criteria

An investment will be sold if it clearly satisfies the Exit Strategy for the sub-portfolio that the investment belongs to Fundamental : The Exit criteria set at the time of

purchase, or modified by the Champion, have been met

Speculative : 15% trailing stop once doubled OR 50% stop loss (whichever comes sooner)Mechanical : After 1 year OR, if up 50% after 1 year,

trailing stop of 15% of purchase price


Strategy Review

• Considerations– How often will you review your strategy– How will you monitor implementation of it

Annual Review by sub-portfolio

Monthly Money Management checks built into our Treasurer’s Report spreadsheet


So…..Why Have A Strategy?• Makes it clear what your club is there for• Acts as a terms of reference to make sure your remember

why you’re in your club• Sets out how to measure whether you’re meeting your

objectives• Makes it clear what approach, attitudes and values your club

wishes to adopt• Allows all club members to shape how your club operates• Sets direction and provides discipline …..

….without unduly stifling flexibility and creativity• Gives new potential members a guide to what your club

believes

investment club national conference 2007 get your club a strategy dave gaskell rolling stocks...

Documents

stocks investment club

club members

club meetings

variety of investment

investment vehicle available

primary investment vehicle

sort of investment vehicles

investment trusts funds