TICN In The Press: May 22nd, 1999

"Getting rich quick; Investment clubs made up of like-minded amateurs regularly outperform funds run by professional managers." By John Crace
Every financial institution wants to do you a favour these days. All you have to do is hand over your cash and they'll put it in their Isa, bond or unit trust while you sit back and watch them turn your money into untold riches.

Whether you're happy with their returns very much depends on your point of view. The best cash ISA is offering about 6.5 per cent and unit trusts are beside themselves with pride if they can produce 9 per cent. Of course, you may reckon this is far better than anything you could do for yourself, but there again, you may not. An increasing number of people have become disenchanted with the investment opportunities on offer from the financial services industry and have taken to going it alone. This decision is usually sparked by the simple realisation that 90% of managed funds consistently underperform the FTSE 100 index, and that you could do a lot better by dumping your cash into an unmanaged tracker fund where it won't be eroded by the high administration charges of barely competent fund managers.

As a first resort for those looking to take control of their finances, the tracker fund has a lot to recommend it. It's easy, cheap and you don't have to pay attention to outperform some of the most overpaid brains in Britain. But a lot of people want more; they want returns that outperform the stock market and they want to choose the stock they buy into.

Investment clubs may not offer the former, but they most certainly offer the latter. The theory behind them is quite straightforward. Up to 20 people, the maximum legally allowed by legislation, all contribute an initial pounds 500 or so to get the fund up and running and then they meet once a month to top it up with further contributions of between pounds 50 to pounds 100.

From a small caucus of just 300 UK investment clubs in January 1995, there are now more than 3,300 - most of which are registered with ProShare, a non-profit making lobbying organisation which encourages equity investment. ProShare supplies the clubs, for a standard fee of pounds 25, with a basic manual on how to set up and conduct their business.

Some clubs do badly, some do OK and some do very well indeed. ProShare's club of the year was Sartis, a Nottingham-based club which scooped a return of 75%. No one knows what the average return is, largely because the poor ones fold quickly.

Just recently, though, a new group of investment clubs, The Investment Club Network (TICN), has arrived on the block and has proceeded to ruffle a few feathers with its more aggressive, commercial approach. TICN is the brainchild of Babu Shah, an e-mail consultant for Cable & Wireless, who four years ago took time out to attend a seminar on financial mastery run by the US motivational guru, Anthony Robbins. Mr Robbins may not be everyone's cup of tea but he was certainly Mr Shah's and he left the seminar inspired to set up a club with his five brothers. Within a year he was up by 15 per cent and had formed a second club, known as the Millennium Millionaires. Since then he has never looked back.

"What I did was to adapt the Robbins' technique of mind mapping to create an instrument for evaluating companies," says Mr Shah. "Most people buy stock on the basis of share price movement. This is no way to make a sound investment decision. I designed a computer program that could assess a company as a whole - its debt, its management structure, its history of earnings and projected growth - to produce a rating of investment worthiness."

It may not be rocket science, but it's a little more sophisticated than many investment tools, and the only catch is that it costs TICN members a substantial sum to get access to it.

Before anyone can join a TICN club they have to attend a pounds 500 weekend seminar, run by Mr Shah, which will teach them the principles of investment and allow them a free run of the computer programme.

Mr Shah makes no apologies for this initial charge. "We are aiming at a more informed investor," he says. "History shows that 80 per cent of investment clubs fold within two years. We think that we can stop this happening to our clubs by ensuring that everyone starts off with a very firm idea of what they are getting into."

Club members certainly have no problems with this. "Since attending the seminar, I made a profit of 200% in three days," says JP Kelly, an Irish farmer. "In less than two months I increased my capital from pounds 2,000 to pounds 7,000." Michael McCarthy was equally bullish. "I believe that this information is giving us the edge to achieve more from our money," he says. "I now feel I am an investor."

Mr Shah is a big fan of US shares, and says his Goshrani club has enjoyed 10% per month returns. Among his favoured US shares currently are Cisco Systems, Wal-Mart, Microsoft and Wholefood Markets. ProShare is less enthusiastic about Mr Shah's approach, which it believes will narrow share ownership. "We are concerned that the public is not misled into believing that you have to go on an expensive pounds 500 course to start buying shares," said Terry Bond, a ProShare director.

Shah insists that TICN is designed to run in parallel, rather than in competition with ProShare, but the differences between the two do not end with the buy-in entry requirements. ProShare clubs usually limit themselves to the UK stock market: TICN believes there are far better returns to be had from the US market and channels most of its attention in that direction.

Moreover, some of the 18 clubs in TICN have moved away from the medium to long -term investment advocated by ProShare and turned themselves into latter-day city slickers with short-term momentum trading, involving options and derivatives.

It's all a far cry from the cutesy Beardstown Ladies image of a bunch of old dears getting together in a front room to pile up massive returns that was the driving force behind the formation of many investment clubs. And although the Beardstown Ladies accounting turned out to be somewhat creative, it's still an image that many clubs are loth to shake off.

Whether TICN or ProShare is for you depends as much on your style as your wealth. Both have much to offer, though neither can make any guarantees. Both are keen to talk up their successes, while their failures get swept under the carpet. But if you do decide to join a club there are two thoughts on which to fall back on. Any money you lose will be down to you rather than anyone else. And you'll struggle to do worse than many managed funds.