THE recent gyrations in the stock market have posed a headache for the 15 men belonging to the Upton St Leonards (USL) investment club.

The club members had a fierce debate last month over whether they should remain heavily in cash or put more money into the stock market. In the end, caution prevailed and they still have nearly two thirds of their money sitting in the bank awaiting investment. Stewart Atkinson, the club’s chairman, says: “We spent a lot of time deciding whether we wanted to stay liquid in the light of the market turmoil or whether we should buy more shares because we are, after all, an investment club. In the end we decided on two purchases, both in the property and construction sector.”

Since USL was launched in March 2004 each member’s original stake of £2,000 has grown by 25 per cent to £2,500. However, the FTSE 100 index of leading shares has performed even better, returning 63 per cent over the same period.

A key element in the club’s set-up is that it operates a stop-loss system, which kicks in when a share falls more than 12.5 per cent below its highest price since purchase. This was introduced in an attempt to halt potential runaway losses at an early stage. Mr Atkinson says that the system has worked pretty well, but in the past month the stop-loss policy triggered the sale of four shares: BAE systems, GlaxoSmithKline, Greene King and British Airways.

Of these stocks, only BAE produced a profit, of 16 per cent. Glaxo, Greene King and British Airways were all sold at a loss.

The only two shares to survive from last month’s portfolio were Gyrus Group, which produces specialist medical instrumentation, and Tesco, the supermarket group.

Gyrus Group is the club’s current star performer. In the seven weeks since it was purchased in October it has produced a profit of 48 per cent.

A Japanese company is currently bidding for the group and the club members have high hopes that the share price will continue to rise.

They also rate Tesco as a solid hold because they think that the company’s management, headed by Sir Terry Leahy, is continuing to do a good job. They are also encouraged by the good news coming out of America, where Tesco is hoping to find a niche in the grocery market. However, Tesco shares currently stand only 1 per cent higher than their purchase price.

The club has also made two new purchases: St Modwen Properties and Kier Group, the construction company. “St Modwen is an expert at redeveloping brownfield sites,” Mr Atkinson says. “It has a tried and trusted formula which works well for it and we think that its share price is currently undervalued.

“Keir Group has been clever in spreading its efforts across a number of different fields. It is building a lot of social housing, which we believe to be a key growth area, as well as schools, hospitals and shopping centres. As with St Modwen, we think that the market is currently undervaluing the stock.”

Both of these purchases are shares that the club used to hold but was obliged to sell under the stop-loss rules. Mr Atkinson says: “We decided to have a look at all the shares we had bought and sold in this way in the past six months. We reckoned that if we originally thought they were good choices, the fundamentals may still be in place to merit reinvestment at the current lower market prices.”