GROUP INVESTING provides an opportunity for sharing the risks, joys and pains of investing.
Yet investing within a group arrangement is a difficult and complex undertaking.
There are difficulties with big groups of investors. Similar issues as with an investing couple apply, and these issues tend to get more complex as the size of the group expands.
Generally, everyone thinking of joining a particular investment group should ask the following questions:
How do I help maintain the optimism of the group in the face of reversals or setbacks? How do I help us all to move past regrets and bad feelings and promote unity and continuing action?
How do I help each member to be tolerant of mistakes and of poor judgement and to avoid the undesirable propensity to cast blame, to get angry and to criticize each other? How do I encourage myself and all other members to get committed and stay committed for the long term?
Each group member needs to understand group dynamics, the background and expectations of individual members and the fundamental investment process.
Everybody is investing with the hope of acceptable returns, but as long as you invest, you also stand a chance of losing part, or all, of your funds (or purchasing power). This understanding is so critical that it is recommended that any investment group develop an explicit memorandum of understanding (MOU).
The MOU should even spell out the decisions that do not require consensus, and in such cases, how would such decisions be reached.
A key element of any such MOU would be how leadership is established and handed on or rotated in the group; who has the final say on any investment choice or change.
In addition, the MOU should set out the overall objectives of the group, and the code of conduct for meetings.
Counselling, informational and developmental sessions should be regularly mounted. When members feel that they are developing, they are more likely to stay with the group. This is an important issue since retaining group membership is more critical than in the case of a couple who are more likely to stay together for life.
Regardless of how small the group, even with a couple, group investing involves sharing responsibility.
Sharing is a balancing act. Achieving and maintaining a balance in a larger group is difficult.
It is proposed that any reasonably effective investment group should best not exceed ten members in number unless there is professional management in place.
As an individual investor, you may be able to forgive yourself or appease your conscience when you “make a mistake”.
However, when you are in a group and take any form of leadership, you are accountable to yourself and the group. You may feel a continuing sense of blame, even if your partners do not declare it. This effect often constrains really high risk taking in group settings as against the daring of an individual investor.
• Louise Fairsave is a personal financial management advisor, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.