Share club is bowled over by success

Cricket-lovers who invest turn a year of loss into one of profit, says Jamie Felix. They learned so much they beat the Footsie1

The Willow Investment Club will celebrate its 10th anniversary next month as one of the longest-running investment clubs in the UK. These cricket enthusiasts survived the bear market and are now raking in the profits, proving again that amateurs can hold their own against the pros.

The average club portfolio has risen 7 per cent for the five months since the end of last August, compared with a 4 per cent rise in the FTSE 100 index and a 5 per cent gain in the FTSE AllShare, show figures from ProshareClubs.co.uk, the home website of UK investment clubs.

Andy Yates, director of ProShare Investment Clubs, says: "Investment clubs continue to beat the City experts and invest with success. By clubbing together investors have proved they can learn and earn at the same time."

The 13-strong Willow Club met this week over a cheerful Chinese meal in London's West End. "We're pleased the club has endured the market peaks and troughs of the past decade," member Patrick Gibson, a GP from west London, says. "Since the beginning, we've always said we're in this for the long haul. We're certainly a damned sight better educated now about how business and economies work."

Regular readers may recall the club's frustrations a year ago, when their ninth birthday party was far less buoyant. Willow, from the cricket bat, was then in the grips of a tenacious bear market that was wreaking havoc on the club's portfolio of UK shares. The Iraq war was growing closer and the FTSE 100 index was dropping like a stone. On 12 March, it hit its 2003 low of 3,287 and many experts were predicting that it could go below 3,000, against the all-time high of 6,930 struck in December, 1999.

But instead of bowing out, the club has spent the year retrenching its investment strategy and diversifying outside the UK. As a result, these amateur investors were strategically positioned for the market's recent surge, and they are now riding out their 10th year with a record annual gain of 35 per cent, far better than the FTSE AllShare, up only 24 per cent in the same period, and a welcome break from the lossmaking grind of the previous three years. "It's refreshing to see less red in our portfolio," the treasurer, Julie Ralston, says.

She is referring to the stock market tradition that falling stock prices are marked in red, risers in blue. The club's performance figures had been all too crimson a year ago.

Members contribute £30 to £60 per month, an amount they say they are comfortable losing at worst. "Sure, no one wants to see our investments lose value, but we never take things too seriously," Ms Ralston says. "It's important to keep a perspective."

The club ventured beyond the UK share arena this year for the first time, investing in the First State Asia Pacific Fund, an emerging markets unit trust. It is now among the club's top performers, up more than 30 per cent since the club purchased it last March.

Ms Ralston says,the club relinquished its dependence on the FTSE and broadened its knowledge of new markets. "We're very pleased with how well our emerging market fund is performing. It has definitely widened our investing scope for the future and opened our eyes to opportunities beyond our own shores."

She says. "Our number one priority as a club is to learn more about investing. We thoroughly researched several fund options before choosing one with the right portfolio composition and management style that matched our needs. We learned about other markets and unit trusts and how they operate, which we take on board for running our own portfolio."

Terry Bond, of Proshare Investment Clubs, says: "Many foreign shares are difficult for clubs to access on an individual share basis. Funds are a cost-effective way to tap into markets where clubs do not have experience or knowledge."

Willow does not operate a consistent stop-loss policy, and had to watch several of its hand-picked investments sink to crushing lows. Last year, Ms Ralston admits, was very discouraging. At one point, nine of their 28 stocks were down more than 80 per cent. "We reckoned it wasn't even worth the cost of selling them," she says.

They are glad they did not sell. Many of their most disappointing stocks, including NXT, an electronic audio manufacturer, have shot up as the market recovered. NXT is now the club's best-performing share, up 150 per cent. Most of that growth stems from the club's top-up purchase last July, when the stock was near its lowest at 35p. Soon after, the price exploded to 170p. It has since settled down near 120p.

Ms Ralston says: "It's the reverse of what many experts teach, but we knew that several of our under-performers were good, solid stocks suffering the fallout of the bear market."

In professional terms, Willow's unassuming strategy is known as contrarian investing, whose disciples include Warren Buffet, the American investing mogul. By focusing on out-of-favour stocks, contrarians look for companies that are undervalued by the market. They often buy stocks that are losing money in the hope that their prices will rebound in future, when the market rediscovers their value.

As waiters serve up Tsingtao beers and Singapore noodles, the Willow's members are getting ready to toast a decade of clubbing together. In that time, the club has grown closer and shared in the arrival of 22 members' offspring.

"We have high hopes that they'll become the next generation of Willow," Ms Ralston says. "We date from an earlier period of investment clubs."

In the club's pre-internet days Ms Ralston confirmed every trade in writing and distributed meeting minutes via the post. "There was still a mystique surrounding the stock market then," she says. "Everything's totally different now."