Wealth through conventional investment principles


Agreement and Rules

The club, just like any other organisation, has to be guided and governed by a predetermined set of guidelines and it therefore has to draft an “agreement and rules”.

Most of the agreement and rules normally are of an operational and administrative nature and will be easily and quickly agreed by the club members.

The investment strategy however is fundamental and has to be given proper and considered thought. It is important that it be understood by all members of the club. It is important for the club to have a common investment goal and investment philosophy supported by all the members. Is the club going to invest for the long-term, manage a well-balanced and diversified share portfolio, follow proven investment strategies and build wealth over the long-term? Alternatively, is the club out to aggressively find volatile, quick growing small companies and to chase frequent small quick gains (play the market with a get-rich-quick approach)? It is strongly recommended that the club follows a very responsible and proven investment approach. (There is however nothing wrong with an aggressive trading approach, provided that all the members agree to it. Active trading is however beyond the scope of Phoenixclub and readers will have to consult other sources for information, trading strategies, etc.)

We have to again emphasize the importance of a common investment goal and investment philosophy. Make certain all members are in it for the same reasons. Failure by the club to strictly follow its agreed strategy and approach will most probably lead not only to failure of the club, but ruin friendships in the process.

The Agreement and Rules will at minimum have to address the following aspects of the club:

  • Name of the club
  • Purpose
  • Mission statement
  • Investment philosophy and strategy
  • Profit share
  • Agree on how the profits will be shared amongst the partners of the club. Profits will in the case of an investment club, normally be shared in a pre-determined ratio which will be the ratio in which members contributed to the partnership.
  •  Memberships
    •   –> minimum and maximum number of members
    •   –> rules for allowing additional members
    •   –> Resignation / full withdrawal of members, etc.
  • Regular contributions (investments) by members
    •   –> Fixed equal monthly amounts per member or
    •   –> Flexible as members deem fit or can afford
  • Withdrawals of money by members
  • Management of the club (office bearers, meetings, minutes, etc.)
    •   –> Chairperson
    •   –> Treasurer
    •   –> Internal auditor
    •   –> Secretary
  • Book of accounts (Define the set of accounts to be kept)
    •   –> Cash accounts
    •   –> Capital accounts
    •   –> Asset register
    •   –> Tax information
  • Operating procedures of the club
    •   –> Calculation of the value of an investment unit / unit valuation system
    •   –> Measures to safeguard the club’s accounts and related information (electronic data)
  • Risk management / portfolio structuring