Some see it as a throwback to another era, but a group of 20-something Calgary engineers say they heartily recommend membership in an investment club after running one for three years.
A well-worn copy of a Canadian Investment Institute book called How to Start and Run an Investment Club for Fun and Learning, spotted in a second-hand bookstore four years ago, gave founder Taylor Merritt the idea to create The Hillary Club.
The $6 book sparked an online invitation to his friends to ask if they were interested. A group of four soon started meeting weekly over breakfast for "stock talk" sessions.
About a year later, the decision was made to take the plunge and start investing real money. A partnership agreement was drafted and registered with provincial securities authorities. The members voted to donate five per cent of net income to charity.
"A lot of that first year was just feeling out everyone's risk tolerance and their appetite for some of these different kinds of investments," said Craig Merritt, Taylor's older brother and a founding member.
"When you mix money and friends, you have to be very careful because you could lose both," Taylor chimed in.
Two more members, also unmarried male engineers who work in downtown Calgary, joined later. The group got together once a week to pick investments, but it also met for non-investing activities such as hiking in the mountains.
It's difficult to get a handle on how many investment clubs operate in Canada. They are regulated by provincial securities authorities, but neither the Alberta Securities Commission nor the Ontario Securities Commission keeps track of how many there are.
Spokeswoman Nima Ranawana said the OSC recommends that members seek legal advice while setting up such clubs because they must comply with rules regarding prospectus, dealer registration and fund manager exemptions.
Tom Graham, the ASC director of corporate finance, said his organization gets a handful of inquiries about clubs every year but they mostly operate "under the radar." In other words, he said, there have been no complaints filed.
He said there's a long list of prohibitions designed to ensure the clubs aren't fronts for investment businesses. There can't be more than 50 members, the clubs can't borrow money from non-members, no member can be paid for his services and there are no preferred shares – proceeds must be distributed based on the amounts contributed.
Tax expert Kim Moody of Moodys Gartner Tax Law said he recommends investment clubs structure themselves as partnerships.
"If it's considered to be a partnership, any gains or losses would be pro rata [paid out based on contribution share]. That's typical," he said.
He said each partnership must file annually with Canada Revenue Agency, but the capital gains and losses are claimed by individual members.
An investment club can also be organized as a corporation, but that gets more complicated, Mr. Moody said, as it would have to pay corporate taxes if there are profits and distribute funds through dividends to investors.
The Hillary Club was dissolved by mutual agreement at the end of the second quarter of this year.
Craig Merritt said he learned a great deal about investing that he can use in his personal saving strategy going forward, but the time involved in researching investments for the club grew too onerous.
Taylor said he's interested in starting another club, but hasn't done so yet.
He said The Hillary Club accumulated about $165,000 from its members and at one time was worth about $220,000. But it wound up just about breaking even, a record he considers a win given that it tended to invest in oil and gas securities because that's what its members know best.
"Our first [investment] was not a short, but it should have been," quipped Craig, recalling that benchmark oil prices were more than $100 (U.S.) a barrel when the club launched and are now at about half as much.
One of the club's most fruitful investments was in Altura Energy Inc., a junior oil and gas producer.
One of the biggest losses came when it shorted options in Dream Office REIT, betting incorrectly that Calgary's slumping office real estate market would show up in its stock price.
"I remember all the bad ones, like when we made long calls last year. … We swung for the fences, struck out," member Matt Hogg said.
"The last three years were not the best time to have an energy fund."