Every investment club should have an "Investment Policy Statement" outlining the objectives and goals of the club and its portfolio. This is the accompanying handout for ICLUBcentral's Club Operations Webinar held on February 15, 2011. For more information, visit the Learning tab at ICLUB.com

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by Doug Gerlach
ICLUBcentral Inc.
February 2011
} Document created for clients or customers.
} Drafted by portfolio managers, mutual fund
managers, pension fund managers, other
institutional investors.
} Outlines basic criteria used to select
investments.
} Clubs should adopt this practice as well.
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} Enforces consistency.
} Prevents club from getting sidelined in
investments that are not suitable for club.
} Helps clubs become successful investors.
} Helps with member recruitment.
} Club should spend some time (several
meetings) discussing and considering their
goals.
} Consider convening committee to draft
statement for discussion.
} New clubs may create general statement at
first, then refine over time.
} Document can certainly change as club
matures.
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} Typically includes:
◦ Investment goals & objectives.
◦ Allowable assets.
◦ Asset allocation.
◦ Risk tolerance.
◦ Portfolio & rebalancing guidelines.
◦ Minimum investment amount in a security.
◦ Stock selection guidelines.
◦ Other considerations.
} Identify investment objective:
◦ Long-term Growth
◦ High-Yield
◦ Current Income
} Most clubs would strive for long-term growth
of portfolio.
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} Identify types of securities club may and/or
may not purchase:
◦ Stocks
◦ ETFs
◦ Mutual funds
◦ Options
◦ Bonds
} Most clubs invest solely in stocks, perhaps
allowing funds & ETFs.
} Identify how much of portfolio is to be
invested in different asset classes (stocks,
bonds, commodities, real estate, etc.).
} Most clubs should aim to be 100% invested in
the stock market.
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} Identify level of volatility club is comfortable
with.
} “Risk” can be defined in many different ways.
} Most clubs would acknowledge that short-
term risks of investing in stocks is offset by
long-term rewards.
} Identify how club aims to diversify holdings.
} Maximum that can be invested in any single
company/industry/sector.
} How rebalancing will be done.
} Most clubs would follow BetterInvesting
guidelines:
◦ Diversify by company size.
◦ Diversify by sector/industry.
◦ Don’t sit on cash.
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} Identify minimum amount that can be
invested in a single security.
◦ Amount would likely grow as club gets bigger.
} Most clubs should strive for minimum
investment that keeps commissions below 1%
of cost.
} Identify criteria that guides individual stock
selection.
} Most clubs should follow Toolkit
6/BetterInvesting methodology:
◦ Positive Sales & EPS growth.
◦ Stable or growing pre-tax profits.
◦ Selling at reasonable P/E Ratio.
◦ Reward/Risk Ratio > 3:1.
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} Do you undertake special effort to consider
or avoid:
◦ Ethical, socially responsible, or “green” companies.
◦ “Vice” stocks.
◦ Local companies.
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