After I wrote how to start an investment club, readers wanted to know more about our investment club portfolio and returns. With the permission from the club members, here is what our portfolio and returns look like at Scottrade, in addition to more information about how the club works.
MITBeta: So how has that worked out for you?
Well you can see that we finally beat our benchmark in 2007. It probably took us at least the first few years to go through all the information on how to run the club, what to evaluate and how to manage the portfolio. We had many members who didn’t know anything about investing in the beginning. During 2006 we became very focused on diversification of the portfolio. You can see that in the last year we’re nearing our target and beat our benchmark for the first time.
Mike: Isn’t doubling your money every five years a very aggressive goal?
Yes, Mike, it is very aggressive. Although, if we were willing to settle for something less, we could probably just invest in index funds. In addition, the goal has served as a very valuable educational benchmark. It makes it much easier to evaluate companies. If we don’t calculate the returns at or above 15% we can eliminate the company from our research.
How it Works
No Debt Plan: Are you investing individually, or does everyone pool money together into one account?
The money is pooled together, but each person’s contributions are tracked at a unit level. It’s similar to owning shares in a mutual fund. Each month a valuation of the club holdings are calculated and a unit value is computed. Each person’s account is updated with the additional units purchased.
At the end of the year, we close out the books and distribute the gains (and losses) to individuals. Each member is issued a K-1 to report their earnings on their individual taxes. In addition, an audit is performed yearly to verify the accounting.
Dan: Please post some of your club’s favorite holdings.
We try to balance across market capitalization and across sectors.
Here is our current portfolio:
- AFLAC Inc
- Asta Funding Inc
- Canon Inc
- Danaher Corp
- Gilead Science
- ITT Corp
- O’Reilly Automotive Inc
- Quality Systems Inc
- Ralcorp Holdings Inc
- Tetra Technologies Inc
- UGI Corp
- Valero Energy Corp
This article is featured in: Welcome to the Carnival of Money Stories #53 – April Fool’s Edition.