Posted on 09/25/2005 9:46:28 AM PDT by Dan Nunn
I was recently inspired by an idea I saw on, of all things, The Simpsons. The plot started as Marge and her friends were gathered at their weekly investment club meeting. Helen Lovejoy was presenting to the club a chart of Dynaflux Unimatics's stock up seven and three quarters.
My reason for posting this is to gather advice from other FReepers, as there is always a wealth of knowledge and advice here. What tips should I follow from the get-go to avoid disaster? I don't necessarily mean the stock picks or whatnot, but rather the interaction between friends. Weekly or bi-weekly presentations of personal picks? All investing a pool of money as a group, or individual picks?
I'm sure there are people in FR who have either done (or are doing) this, or have at least thought about it. So if you had a fre 'best practices' for this, I'd love to hear them! After all, investing is smart, but a club brings even more minds to the table to make educated decisions.
Remember, in investing, if no where else, DIVERSITY is your strength.
Is social interaction more important than rate of return i.e. why a club vs. going it alone ?
Timing's important - why now ?
First write everything down. Who paid in what, get things notarized, etc etc. Keep track of who is going to get paid what and let everyone know that they can lose everything. Write up HOW decisions are going to be made regarding the portfolio...
Even if they don't lose, put it in writing before hand.
Don't put yourself out there as the 'organizer' otherwise later on people could come after you.
Also you cannot take a cut of the profits. You can only get $ based on what you put in, otherwise you can get in trouble with the state. IE you cannot charge fees or take out money for admin costs etc.
Probably not. Obviously that is a goal of mine (and ours) but if we do, it will be based mostly on financial advice of others.
Is social interaction more important than rate of return i.e. why a club vs. going it alone ?
Yes and no. I think the social interaction might increase the rate of return compared to me investing alone. A group of thinkers discussing the merits of a particular stock, fund, market or what have you will (in my opinion) bring more to the table than one mind.
Timing, really, isn't explained by much more than an idea I had and a willingness to invest for a long time. I suppose I could take the group idea and make it individual - rather than everyone investing the same. Just ideas for me and the group to think about.
Thanks for the post!
First write everything down. Who paid in what, get things notarized, etc etc. Keep track of who is going to get paid what and let everyone know that they can lose everything. Write up HOW decisions are going to be made regarding the portfolio...
Even if they don't lose, put it in writing before hand.
How very true. Keeping track is essential, and I've come to think that everything should be 100% in-or-out, meaning everyone always pays the same. Trying to separate profits when one person put in a quarter of what everyone else did means only more headaches.
Plus, I'm dealing with several poker players here. I think they're understandable with losing the money they put in. Heck, their odds are better at this than poker most of the time!
otherwise you can get in trouble with the state.
Very sound advice. Thank you very much. Administering fees, etc, really wasn't in my plans, but good to know. If everything is decided as a group, there's less of a chance, as you mentioned, as me being coined the organizer.
I am positive we'd need to have a 'rules meeting' of some sort and come up with ground rules for the group. Rules, such as, a unanimous vote is required to invest the group's pool, or something like that. If you can think of any ground rules that would be very good to mention, please, by all means, let me know!
Funny, and true. Thanks for the laugh!
things (the market)are not as they used to be.
People in the market who shouldn't be e.g.waitresses & hairdressers
....w/dishonorable goals - a quick buck &/or a 15% yr/yr R.O.I
w/ no oversight e.g. K-mart, Adelphia, Global Crossing,etc, combined w/
massive pension underfunding, a potential melt down at Fannie Mae, etc
It's not a cake walk you're entering...more like musical chairs.
Be careful !
Your post was very true and also eye opening. There are plenty of people in the stock market who simply should not be. Thank you for the word of warning!
Thanks for the link! It is very informative.
Task #1: figure out who is going to make more money than the competition.
Easier said than done, but investing is 90% research and 10% luck, not the other way around, at least for professionals...
I put in a month of Sundays worth of research before I would buy anything. If you do your stuff right the market won't pass you by.
The first time I ever did a full on model I tracked the stocks of a particular industry for a few months and read every jot and tittle I could about the industry... I interviewed people. I asked questions. I read about 1000 balance sheets. I learned who was integrated how.
The result? In a non internet industry (oil)(for my project) I netted over 800% returns in just over 6 months under real market conditions. That does not happen every day, but it was interesting when it did! I was in the right spot at the right time. Too bad I was a student and had no real money to put into it...
Study the company and its composite make-up. What makes its top line and what makes its bottom line. Not what is the bottom line, but what makes it what it is...
Then compare that to all the others in the same industry. When you get corporations that are conglomerates of many unrelated industries that can get complex....
Geography matters as well. Where are they making the money? Many corporations earn revenue globally... figure up the revenues country by country if possible....
Just imagine a car engine... take the whole thing apart and compare parts from one engine to the other... The carberator on this one is XYZ... the pistons on that one are ABC....Then come up with how each component creates what you see in the balance sheet (or in how the engine runs)...
Homework pays. Put it that way.
Thanks for the reply again!
I don't want to sound like we'd bring out a dartboard to pick our stocks, on the contrary. I think that a group environment would be much more beneficial as far as research goes than doing it individually (at least on my end, being relatively new with an extra few pairs of eyes helps).
You offered a lot of insight as to what you did to recognize a good pick when you saw one. I do appreciate it. I only wish, as I'm sure you do, that you used real money! That's quite an accomplishment.
Like I mentioned earlier, I think the extra set of eyes would help. It's a small amount of money that we'd be investing, and I highly doubt any high-risk investments. If it turns out poorly, then we know what not to do while hopefully minimizing losses. If it turns out well, it will serve as a great learning experience for everyone involved. Then and only then would I entrust any sum of money into the stock market with only my oversight. (Hint: LONG way away).
Your analysis of the workings of companies is much appreciated. There is indeed quite a lot that factors into a bottom line, which makes for a lot to research when doing your homework! Thanks again for your post!
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