TICN In The Press: February 24th, 2002

"Join the Investment Club" by Aileen Power
"Shares are scary, and you can lose your shirt," was what flickered through Patrick Murray's mind when a colleague suggested joining an investment club early last year. But Murray, a healthcare manager based in Donegal, took the plunge and joined a small group of other amateurs with an interest in the stock market.

The investment group dealing exclusively in US shares, started in August 2001. So far its profit is 33 per cent in a difficult market in which the S&P 500 is down over 11 per cent in the same period. Its portfolio is now worth almost $12,000. So how was this achieved?

The initial idea came when Murray attended a meeting hosted locally by The Investment Club Network (TICN).

"TICN offers a supportive environment, investment advice and access to information on how to assess whether shares you are considering buying are of good quality and have growth potential. The comfort cushion is that your personal financial exposure is limited to you monthly contributions," he said.

TICN also advises members on how to gain access to the US markets. There are 19 group members in Murray's club and each contributes 68 per month, giving a cumulative monthly total of almost 1,300. They meet monthly to discuss where to place their hard-earned money.

"If Enron, Elan and Eircom have taught us anything, it is to maximize profits and limit losses," he said.

It is a requirement for individual members of TICN to attend TICN's weekend intensive investment training course within about six months of joining, which costs about 1,000, according to Murray.

TICN provides an 'associate' who is part of the group (although making no financial contribution) and provides support, advice and guidance on investment matters. The group's objective is to create wealth over a five-year timescale, which will be shared equally by all group members.

The strategy is medium to long-term, with a focus on investing in fundamentally sound stocks and accumulating benefits from buying and selling shares and reinvesting the gains in the stock market.

"We are active not passive investors - we are looking to make money on market moves by trading (buying or selling) the shares rather than just sitting on them for the next five years. That said, we're not day trader, trying to get rich quick," said Murray.

The investment group is diverse, with a large proportion working in healthcare industry at different levels. There are teachers and a number of self-employed business people.

Eighty per cent of the group is male with ages ranging from early thirties to early sixties. Some group members successfully traded shares in the past; the majority had no previous experience but were enthusiastic beginners.

The group chose the US market for a number of reasons. The range of diversity of shares traded offers greater scope and liquidity (ease of buying and selling shares) that the Iseq, FTSE or European markets.

There is also a plethora of websites offering high quality information on US shares, free of charge, that the group uses. These are sites such as www.bloomberg.com, www.FT.com and www.earnings.com. They are supplemented by dedicated business television channels such as CNBC and Bloomberg.

How can you make money from selling 'covered' calls in the market?

The US market also offers the facility to trade options, or place 'covered calls' on the shares purchased, which is not available when trading Irish Stocks. Covered calls occur when an investor sells a 'call' option (a right to buy) to buyers in the market on a stock which they already own.

In this case the group sold 'out-of-the-money' options which means the buyer of the option has the choice (but not the obligation) to buy the shares at a higher price than the price at which the group had purchased them, at a fixed date in the future - usually the third Friday of each month.

The group is paid a price for selling an option which adds to the return from their shares.

For example, the members owned Oracle, a software company at about $12.50 per share, and they sold call options on a monthly basis with strike prices of about $15 - the price at which the shares could be bought by the owner of the call option.

TICN has an affiliation with MyTrack (www.mytrack.com), which made opening a trading account easier. It costs $12.95 per trade irrespective of sized once you are buying or selling more than $500 worth of stock. It costs the same to execute an option transaction but the trade size must consist of at least 100 of the underlying shares.

"It has been a steep learning curve, and has been interesting, educational and enjoyable. Having found my feet within a group, I am now ready to trade independently, albeit on a small scale," said Murray.

(On a cautionary note, while the shares chosen are real, this article is not designed to provide tips or advice. Patrick Murray is an enthusiastic amateur, happy to invest money he can afford to lose in order to enjoy the thrill of the stock market, whilst hoping to make a profit along the way.)