Reviewing My Investment Clubs

by Evan

As I have mentioned over the years I currently have two active investment clubs which I helped start. I don’t write about them too often for a two reasons. The first is that they are operating as they should, so there is nothing really to discuss, and two they aren’t just my assets and as such, I don’t feel it would be right to put too much information on the internet. Notwithstanding, I feel the need to chronicle some information for myself every so often.

Investment Club Number One

The original idea to start an investment club went all the way back to 2008, but wasn’t implemented until 2013. The idea was simple enough:

  • 9 Individuals – each person had a relationship with me, although most knew each other they weren’t all buddies
  • One person one equal vote
  • $500 to start; $100/mo thereafter (AUTOMATICALLY DEPOSITED NO CHASING DOWN PEOPLE) – Increased to $150/mo in 2017 or 2018
  • Created a legitimate LLC and have our taxes (pass through entity) done by a professional
  • To buy or sell a position you would need 6 votes of the 9 members (if you get 7+ the move can be made immediately, if not it’ll have to wait 24 hours)

I was just saying to a fellow member that I can’t believe this bunch is still working together. This month marks our 7th year! If you had told me we would still be working together in 2020 I would have laughed at you. I would have guessed that internal bickering and/or pure apathy would have killed the club, while it almost did when we first started, we are currently at a fantastic place. The bull market has really helped solidify the group – hard to fight when everything is working out!

I have mentioned it before but one of my favorite things about running this blog is the ability to look back and see the evolution of an idea or asset:

Looks like I missed last year. In 2018 I wrote about what has worked for us:

We always have fresh capital coming in.  Yes, that capital is becoming a smaller when compared to our general account size, but it is still capital nonetheless.  This allows us to have a new investment discussion without forcing us to cut our losers we believe in for the long term, or more importantly, cut our long term winners.  

No one calls out losing investments.  This is actually really important to me.  Every investor has taken their shots on the chin, calling out a colleague will only serve to freeze future ideas which may be profitable.  The few times it has happened it sort of gets shut down by the group in general which is huge for harmony purposes.

While most members have strong personalities no one claims to be an expert.  Similar to my point above, just because you have hit one or two out of the ballpark, it is likely you have a loser in your history.   No one actively trades on their previous gains (I am sure it happens subconsciously when a vote comes up, but there is nothing that can stop that).

We really are a diversified group by education, trade, experiences, socioeconomic status and political affiliations.  It leads to very little group think.

It is 2 years since I wrote those attributes and they look more accurate than ever!

Investment Results of my First Investment Club after 7 Years

The gap between the two lines is our gain:

I am always so shocked to see that we are consistently beating the market. I am not delusional I know a lot of it is luck, but there is something to be said about 9 people coming together and hashing out ideas. It usually stays cordial but some of the strong personalities mixed with various knowledge levels actually work to our benefit. People are not afraid to vote no, and sometimes their reasoning is okay and sometimes it doesn’t make sense but it is all good!

Our 5 largest holdings are:

  • MSFT
  • Cash
  • Disney
  • Goog
  • JNJ

My biggest complaint is that we haven’t had dividend reinvestments on all these years. Given those holdings (and a few others) we would even be bigger!

Future of Investment Club One

I think this club is going to be around a lot longer. We have a good amount of assets at this point and a pretty good working relationship. There is always talk about diversifying into different asset classes such as real estate, but I don’t ever see this happening. Stocks provide a limited amount of mental and physical work, and lends well to us not having to talk daily or even weekly, which has happened at times.

Investment Club Number Two

In the middle of 2018 I was approached by my brother (who is a member of Investment Club One) and his buddy (not a member), about starting a second investment club. I was hesitate at first,

I have a bias towards working with groups, so couple that with a need to keep some form of control and I end up doing the grunt work.  So my initial feelings were to say no.  However, then I was told their very specific investing mandate (discussed below) – I immediately signed up.

The investing mandate was a bit different then above which had the broad mandate of buying low and selling high. This investment account was specifically created to buy dividend paying stocks. This account is held at E-Trade so I don’t get all the great performance data that Fidelity provides. Notwithstanding, given our mandate I think it will be more interesting to see how our projected dividend income increases over the years:

This account is tiny compared to Investment Club One, but there are fewer members and we haven’t had 7 years of compounding yet.

Future of Investment Club 2

I think we are just too new to know what this will turn into, but so far it has been working! I am hopefully optimistic but only time will tell. It is our goal to see that estimated income increase year after year regardless if there are momentary decreases in the underlying asset. I look at this account as an extension of my dividend investment portfolio.

Would I Start Another Investment Club

In a word, absolutely. If they are set up correctly, an investment club can bring a lot of value beyond just monetary gains. There is something to be said to link up with a few people with a common goal. Notwithstanding, everyone should have their eyes wide open as it is likely an illiquid asset.

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