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50 Things I’ve Learned About Investing, Clubs and Life
Doug and Johnny Depp Journey Into Their 50s; We Offer Advice From One of Them
Johnny Depp and I both passed the same life milestone this spring, turning 50 years old just three weeks apart. Although I
quietly celebrated my birthday with a trip to North Dakota, the last of the 50 states I hadn’t yet visited, Depp was feted by publications and the media with articles such as Entertainment Weekly’s “Johnny Depp: His 50 Best Moments for his 50th Birthday.”
2013 marked another milestone for me — the 20th anniversary of my first investment club. Since 1993, I’ve continuously been a member of one or more investment clubs. I’ve learned a lot from participating in the investment club movement, so I thought that I’d share a few of the lessons I’ve picked up along the way. Here’s my personal list of “50 Things I’ve Learned About Investment Clubs, Investing and Life.”
1. “Buy and hold” doesn’t mean “buy and hold forever.”
2. 12 smart investment club members are better than the average Wall Street analyst.
3. Complicated investing strategies are doomed to failure.
4. Consistency in your investing approach is more important than conviction.
5. Devising convoluted rules about running your club will drive members crazy.
6. Nobody likes an overbearing club member.
7. Member withdrawals will always happen; if you restrict partial withdrawals, members will make full withdrawals instead.
8. A well-rounded stock portfolio increases returns and reduces risk.
9. Restaurant stocks often cause indigestion.
10. Retail stocks often fall out of fashion.
11. Club treasurers who allow their clubs to invest in master limited partnerships, royalty trusts and real estate investment trusts will regret it.
12. Buying dented canned goods from the discount shelf at the grocery store can be risky, just like buying dented stocks.
13. Paying more than 1 percent of an investment in commission on any stock buy is throwing good money away.
14. “Selling” is not a dirty word.
15. The Stock Selection Guide is easy enough for grade-schoolers to learn, so why some investment club members resist it is one of the world’s great mysteries.
16. If you’re not analyzing stocks using the SSG (with Toolkit 6 or BetterInvesting’s Online SSG), you’re not really analyzing stocks.
17. Don’t buy stocks with very high price-earnings ratios.
18. The most important factor in an investment club’s
success is how well it manages its portfolio management, not how well it selects.
19. There’s a degree of luck involved in investing in stocks, but you can stack the odds by investing
20. Experience gives you license to break the rules.
21. Breaking the rules gives you experience, but probably not the kind that’ll make you feel very happy.
22. It isn’t called “BetterInvesting” without extremely good reason.
23. Investment clubs are social entities made up of people who know how to buckle down and work.
24. Buying stocks that are growing at excessive rates is fun while it lasts, but the aftereffects
can be brutal.
25. If your portfolio keeps you up at night, you need to make adjustments — either to your holdings or to your attitude.
26. Large-company stocks are dangerous because of the false sense of security they provide, keeping your capital captive at lower rates of return than can otherwise
27. Markets go up.
28. Markets go down.
29. Markets are unpredictable. That’s the only predictable thing about them.
30. Investing regularly during a bear market takes courage but has a big payoff.
31. Selling winners to “protect” your gains is like cutting the blooms off your flowers and letting the weeds grow in your garden.
32. Your club shouldn’t be your only investment.
33. Buying a mutual fund in your investment club is a lot like putting ketchup on your blueberry pancakes — it doesn’t really work.
34. Greed is one enemy of prudent investing.
35. It’s not worth it to hold a stock if it doesn’t make up at least 3 percent of your total portfolio value (or you have a plan to add to your position to reach that level).
36. Chasing high-dividend yields is incompatible with a growth stock strategy.
37. Stock screening is the best way to find stocks to study.
38. You get better and smarter about investing in the stock market as you get older.
39. If you don’t want to do the minimal work involved in managing a portfolio of stocks, just buy a handful of well-chosen index funds or ETFs and be satisfied with earning average returns.
39 (a). Or subscribe to the Investor Advisory Service newsletter.
40. The strength and consistency of a company’s pre-tax profit margins are some of the single best indicators of the quality of a company’s management.
41. You have to be right only 80 percent of the time with BetterInvesting’s methodology to be successful.
42. Monitoring the performance of a stock’s fundamentals once you own it means more than looking up the price on some website.
43. Selling requires discipline, just like buying does.
44. You’re never as much of an expert as you think you are.
45. A stock split is a nonevent, no different from making change for a $20 bill with two $10s.
46. Giving people investment advice never works out. If you’re right, they take credit for being smart enough to listen to you; if you’re wrong, they blame you.
47. Historical fundamental stock data isn’t a matter of fact but is often largely a matter of opinion and interpretation.
48. Even though investment clubs are pass-through tax entities, it still benefits the members to be tax-smart in all investing decisions.
49. Trying to skimp on investment club accounting tools is a surefire way of paying for it later.
50. Never forget — fundamental analysis has the word “fun” in it for a reason!
Douglas is ICLUBcentral's product manager, helping develop the company's programs including Toolkit 6, myICLUB.com, and the Investor Advisory Service. He is also the author of several investing books, including The Pocket Idiot's Guide to Direct Stock Investing, The Complete Idiot's Guide to Online Investing, The Armchair Millionaire, and Investment Clubs for Dummies.