A Vancouver entrepreneur has taken a fun, old-fashioned way to play the stock market and turned it into a multi-million-dollar vehicle through which investors can pool their resources and securities smarts.
The name of the vehicle is Freedom Investment Club, based in Vancouver. In its 25 months of existence, it has attracted some 1,500 members in Vancouver, Calgary, Edmonton, Winnipeg, Los Angeles and Seattle.
And its pot has grown to $10 million, claims chair and CEO Mike Lathigee, who made a mini-fortune 13 years ago as a University of British Columbia arts student renting bar fridges, TVs and microwave ovens to his fellow students.
“We believe we’re the largest investment club in Canada,” says Lathigee, 39.
Chances are if you know a stock certificate from a poker chip, you’ve at one time participated in a small investment club.
Investment clubs have been around for decades. Stockbrokers love them – they’re happy to mentor because they know these clubs can turn a novice into a long-term, loyal client. Today, these clubs have handles such as Moneybags Investment Club or Foxy Ladies Investment Club. The members pool their money and make decisions by majority vote. Investment clubs typically have five to 15 members. Mom and Dad might organize one for their three children to show them the rewards of the free-enterprise system. Or they might consist of workmates, neighbours or parishioners at a church.
John Bart, publisher of Toronto-based Canadian ShareOwner magazine, says the key to running a successful investment club is education. A single-minded desire to make a quick buck usually leads to disappointment – and a club’s demise, Bart says.
Stock market education must be the core purpose of the club, says Bart. “People can learn together and have discussion groups on different aspects of investment.”
Bart says successful small clubs base their portfolios on high-quality growth stocks, such as Home Depot, Shoppers Drug, Loblaws and some chartered banks. “They’re the easiest to understand and learn from,” he says.
“People should not be buying cyclical stocks – resource stocks, high-tech stocks,” he adds. “You’ve got to keep it simple.”
Lathigee says Freedom Investment Club – which meets six to eight times a year in the cities in which it recruits investors – evolved after he organized a group of friends who were buying overpriced stocks and losing money. “They were caught up in the euphoria of dot.com,” he recalls. “I found they did no homework – no due diligence.”
Lathigee says he met with his friends once a month, teaching them the fundamentals of investing, market trend analysis and what’s happening in the macro- and micro-economies.
As they continued to attend and began making good returns, “they started to bring friends and friends of friends,” Lathigee says.
Out of these beginnings grew the Freedom Investment Club (FIC) and its sister club, Wealthbuilder Investment Club, a holder of RRSP-eligible securities for FIC’s investors who decided they needed a tax-sheltered vehicle for their retirement nesteggs.
Currently, Freedom Investment Club has 700 members in Alberta and 700 in B.C., Lathigee says. The club’s managers work out of their homes, using a West Broadway, Vancouver, mail drop for the club’s correspondence.
Though FIC actively recruits new members to meet its goal of a $25- million investment fund (after which people seeking membership will be put on a mailing list), it is exempt from having to register with the B.C. Securities Commission.
Nonetheless, Freedom Investment Club keeps the lines of communication open with the commission and files offering memoranda. And the memoranda caveats are explicit: Investors are restricted from selling their securities, for example, and “this offering should be considered highly speculative.”
Lathigee says education continues to be a large component of his club’s activities, and law enforcement authorities have attended meetings with groups of investors to teach them how to avoid crooked securities schemes.
Freedom Investment Club holds meetings annually in each of the cities it serves where members vote on whether to collect dividends. So far, they have elected to continue investing all the money.
“Members are much more involved in investments than they would be with mutual funds,” Lathigee says, touching on one of his favourite subjects.
Lathigee says mutual funds typically are bloated, unresponsive to their investors’ interests and given to collecting substantial fees. “They are just too large,” he says. “They become a mini-index of the entire market.
“They never get to buy the really good junior companies because their minimum investment in a company may be $10 million or $20 million.”
The seminars and workshops organized by his club’s education division are generating large amounts of revenue, Lathigee adds.
“All the salaries in our investment club come out of the education division.”
Thirty per cent of Freedom Investment Club’s portfolio consists of stocks, with the remainder invested in an equity position in a North American payroll loan company, second mortgages and esoteric American tax liens and tax deeds.
Lathigee says his club’s investment picks are the responsibility of a “deal flow committee” that consists of four executives including himself, two stockbrokers and one certified financial analyst.
“Right now, we believe the market is in a long-term bull market run in commodities,” he says. “We’ve been doing extremely well investing in things such as uranium, copper, coal and nickel.
“For the foreseeable future, we believe that this market trend will continue.”
(Brock Ketcham can be reached at email@example.com)