2. INVESTMENT CLUB NATIONAL CONFERENCE 2007 Get Your Club A Strategy Dave Gaskell Rolling Stocks Investment Club

3. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

4. INVESTMENT CLUB NATIONAL CONFERENCE 2007 ? Why have a Strategy? Makes it clear what our club is there for Acts as a terms of reference to make sure we remember why we’re in our club Sets out how we’re going to measure whether we’re meeting our objectives Makes it clear what approach, attitudes and values the club wishes to adopt Allows all club members to shape how the club operates Sets direction and provides discipline ….. ….without unduly stifling flexibility and creativity Gives new potential members a guide to what our club believes

5. INVESTMENT CLUB NATIONAL CONFERENCE 2007 What Should It Cover?

6. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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)

7. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

8. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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.

9. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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.)?

10. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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)

11. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

12. INVESTMENT CLUB NATIONAL CONFERENCE 2007 Types of Analysis Three Sub-Portfolios Speculative 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

13. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

14. INVESTMENT CLUB NATIONAL CONFERENCE 2007 Money & Risk Management 0-25% in Speculative sub-portfolio 25-50% in Fundamental portfolio 40-70% in Mechanical portfolio 0-25% in cash (excluding cash in the Mechanical sub-portfolio) At least 75% of assets should be in common UK stocks No more than 40% of invested assets should be in any one sector No more than 20% of invested assets should be in any one stock Lowest of £300 or 1% assets to be annual learning budget Lowest of £300 or 1% assets to be annual “fun” budget Trading amounts should be such that dealing costs in any one trade (buy or sell) are less than 3%.

15. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

16. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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

17. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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?

18. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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

19. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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

20. INVESTMENT CLUB NATIONAL CONFERENCE 2007 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

21. INVESTMENT CLUB NATIONAL CONFERENCE 2007