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Seasoned investors will tell you that investment clubs are the best school there is to learn the secrets of the stock market. This legal entity ï¿½recognized as such by stock market authoritiesï¿½, is formed by groups of friends who feel the urge to play the stock markets but without too much personal risk.

The best way to go about it is for 15 members ï¿½work colleagues, or faculty classmatesï¿½ to get together. Each member puts in, say, 500,000 pesetas, so the joint capital amounts to 7.5 millions pesetas. With this fund you can do something more constructive than merely win or lose. You can learn the language of high finance.

If all goes well, the revenue accrued is shared out among the members in proportion to each oneï¿½s shareholding. If things go pear shaped itï¿½s time to learn the lesson quickly, analyse your mistakes, and work together to turn things around.

The rules of the game are simple; since everyone takes a risk, everyone should have a say in the portfolio of shares. Ideally all the members of the club should not only contribute with their money but also with their opinions to build a consensus-based share portfolio. The stock market bug soon gets a hold.

The National Securities Market Commission (CNMV), guardian of fair play on the stock market, recommends that no member should put in more than two million pesetas. It also advises that each club should be made up of no fewer than five members and no more than fifty. The idea is that members should be able to discuss and argue about the advisability of investments, and this becomes difficult when too many people are involved. There are currently more than fifty investment clubs registered with the Madrid stock market, mainly made up of groups of university or business school students.

The members of a club should follow share prices closely, listen to what the analysts recommend, read the financial press and then follow their own criteria. In the Bilbao stock market there are investments clubs whose members have an average age of 23.

Thanks to the Internet, investment clubs have become more agile and more effective. Itï¿½s no longer necessary to go to the bar to discuss stock market matters, since the whole business can take place via forums and chats among young investors.

REQUIREMENTS

Visit your local Tax Office and fill in the form to register your investment club.

Open an account with a stockbroker to act as your intermediary on the stock exchange.

Draft some statutes in which the clubï¿½s rules and the number of members is stipulated. Stock exchanges have standard forms to save time.

Include all the membersï¿½ personal details in the clubï¿½s statutes: name, personal tax number, address, telephone and e-mail. Only private individuals are allowed (i.e. no companies).

Once the above has been done, your club must be registered with your chosen stock brokers, your local Tax Office and your local Stock Exchange Operating Company.

Each member makes an initial cash contribution and thereafter makes monthly payments. Goods or work in exchange is not permitted.

Decisions are taken jointly, after a vote if necessary.

Profits and losses are apportioned according to each memberï¿½s contribution.

Services rendered to the club may not be remunerated.

No external advertising of the clubï¿½s investments may be made.

The club is liable to capital transfer tax and stamp duty. This is equivalent to 1% of each memberï¿½s contribution.