Investment Club selling shares between meetings

JungleJim

Junior member
33 0
Dear All,

I am a member of an Investment Club. Currently we have one formal meeting a month and one informal meeting a month and an e-mail newsgroup that we use daily. Currently we only buy and sell at the formal meeting but I would like the club to have the ability to sell shares between meetings using the newsgroup. My suggestion of how it could work is as follows:

1. Selling below a 20 percent profit. If a member wishes to nominate a company for selling they send out an e-mail clearly saying they wish to nominate X company for selling only if the share price stays above XXXp. There is then five days for other members to come back and either agree or disagree. We cannot sell unless at least 50 percent of the total members vote and every single vote has to agree to sell - so any member has the right to veto the suggestion. If we get the required votes within the five days we sell the company. If we don't get the required votes within the five days then we don't sell until we do get the required votes - this could take 10 days or even longer. It would be up to the nominating member to put forward a good enough case for selling. Also, the vote is only valid until the next formal meeting.

2. Selling above a 20 percent profit. If the Ask price of the share (the price we would get if we sold, not the mid price) is above 20 percent, the committee has the option of selling the share. However, every member of the committee has to vote (Alan, Clive, Dougie and I) and any committee member has the right to veto the suggestion.

However, another member has pointed out that these suggestions my be illegal and made the following comments:

Regarding buying and selling through the newsgroup. I have no objection to this being done, but as far as I understand it there are legal reasons which prevent it. I am not saying that these reasons cannot be overcome, but I don't have enough legal knowledge on how it can be done. First of all we are a partnership, covered by the English Law of Trust. Secondly, our
constitution says that the dealing decisions must be made at the normal meetings, and that due notice of such meetings have been given to all members. At this meeting, of which the partner has been given due notice, a majority of the partners can decide to deal in shares. If a partner doesn't turn up, either with or without apologies, they have no right of redress against the club, or any of its officers, provided that the decision has been properly taken and executed. If shares are bought and sold outside of
these criteria, for instance via a newsgroup or the telephone, each individual partner has the right to be consulted and their agreement obtained, and if they aren't consulted, in the event of something going wrong, then they have the right of redress at law. The likelihood of this happening, of course is very small. The only way, at the moment, that I can see of overcoming this, is a: by consulting all members if it is contemplated that a deal be done, and this means contacting them and getting their agreement for the action, in writing, via the newsgroup or b: by
giving some kind of authority at a meeting to allow dealings in certain shares which we own in between meetings, where the price ranges including total expenditure and the companies involved are quantified. This does not mean that the club can deal in shares willy nilly via the newsgroup. In the unlikely event of a dead cert profit-making share suddenly appearing, the
procedure of making sure that every member is consulted and has agreed to the purchase in writing comes into play.

Another alternative would be to re-write a section of the constitution, where we turned ourselves into a virtual club and didn't need to have meetings at all and that all of our business was transacted over the Internet and made the newsgroup the sovereign body. That would be breaking new ground, legally...but I still don't think it would overcome the problem
of consultation, but as I say my legal knowledge is not great enough in this area.

So my question is this. How do other investment clubs sell shares between meetings (if in fact they do). If it has been entered into your constitution would you be willing to let me have a copy? Can anyone suggest a legal solution to this problem.

Any advice will be greatly appreciated.
 

ChartMan

Legendary member
5,580 46
Two things spring to mind.... Investment clubs tend to invest over the longer term and monthly/weekly ( whatever) meetings to decide buys/sells is in a reasonable timeframe for most events....
Secondly, what you are suggesting is verging on intraday closing to obtain maximum benefit.
If that is the case, you should really all consider getting together and change the constitution . Make the sell rules cast in stone. Sell when profit is > X %, with a trailing stop of Y%. When the rule is broken , the trade has to be concluded. Sell is the price drops by more than X% or Ypence. These you should decide at the time a decision is made to buy. Asking 5 people to decide if they want to sell at a particular time just serves to encourage indecision.
Heading down a litigation route and " subject to English Law of Trust" for your tiny partnership has to be unworkable and distasteful.
 

JungleJim

Junior member
33 0
Dear Chartman,

Thank you for your advice. I have also been trying to contact other Investment Clubs to see how they handle this question.
 

Skimbleshanks

1
2,325 16
Have you tried talking to ProShare? They're the umbrella organisation for investment clubs, so if anyone knows, I expect they do.

www.proshare.org
 

JungleJim

Junior member
33 0
Dear Skimbleshanks,

Thank you for your suggestion. I had already visited Proshare as we are members of that organisation. However, I paid them another visit and found someone there that I could e-mail so I have asked them the same question. When I get an answer I will post it here.
 

JungleJim

Junior member
33 0
Dear All,

I have today received a reply from Proshare and thought you might be interested in their reply so I have posted it below:

Terry Bond - Proshare

Dear Tim,

Thanks for your email. You raise a number of points and float a few ideas - newsgroups, telephone voting, virtual clubs etc. - that are interesting but in my opinion, only serve to complicate the issue. I have found that the maxim Keep It Simple is the best way to run an investment club. However, if you are insistent on tweaking the system and creating rules outside the guidelines in the ProShare Manual you are at liberty to do so - although I would advise you to get any changes checked by your own lawyer.

One of the few snags about the operation of a club is that invariably it only meets monthly and that is a long time in stock market terms. Many clubs have an automatic stop loss policy which means that when a share price goes down, say, 15 per cent (clubs set this figure according to the volatility of each share in their portfolio) it is automatically sold - no discussion. I have heard of clubs that also have a stop profit policy which works on the same basis, but I am generally not in favour of this.

As far as changing the constitution is concerned, I do not see the need. At an ordinary meeting just vote to have a rigid stop loss policy on your portfolio. As I say, Keep It Simple.

Finally, a word about virtual clubs. There are several of them running, some quite successfully. Their main problem is the difficulty in holding inter-active discussions. They take an age.


Terry Bond
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock