In July of 1999, I joined a group of teachers in an investment club.
Coined, somewhat mockingly, “The millionaire club” by some of our fellow teachers, our arguably geeky goal was to pool our money, invest it in the stock market, and become rich.
More than a decade after we started, we’re still chasing the dream.
What started out as a dozen members adding $50 a month has morphed to more than 20—and our portfolio has ballooned to roughly half a million dollars.
So what’s so unique about what we’ve done?
Since we began keeping records with Bivio in October, 1999, members who have added a regular monthly contribution have seen their accounts compound in profits by 7% annually, as an average.
From 1982 until the year 2000, that wouldn’t have been anything to write home about. A blindfolded monkey could have compounded money at more than 17% annually—thanks to the crazy, rip-roaring ascent the stock market took.
If you were investing money in the stock markets from 1982 until the year 2000, and if you didn’t make at least 17% annually on your stock market money, you better fire your advisor, if you have one. That’s how quickly the tide rose.
But from 1999 until today, we’ve had a very different investment climate. Say what you want to about the economic crisis—the poor returns from stocks since the year 2000 was destined to happen anyway. After such a big run, and with stocks hitting silly price to earnings levels, the markets were destined for a long breather or a big drop.
As you can see below, the S&P 500 was at a higher level in 1999 than it is today:
We’re especially fortunate to have compounded money at 7% annually since 1999—considering what the markets have dished out since then. And in 2008, Ian McGugan (the founding editor of MoneySense magazine) asked us to publicize the story, which we did with our MoneySense article: How We Beat the Market.
What’s the secret of our success?
For us, we want to recognize what we’re good at and what we aren’t good at. If a business is tough to understand or value, we won’t buy it. Successful investing is probably more about avoiding mistakes than it is about brilliant moves.
We’re cautious about picking stocks, understanding that we can’t value a commodity based business, like an oil company. Where prices of the products are unpredictable, we tread elsewhere.
How do we determine a price for a stock?
We try to analyze our stock purchase prices based on common sense, while allowing for a margin of safety. You can see an example of a stock I bought for my personal account here, and the price analysis that accompanies it: The Easiest Business in the World To Value
Beating the S&P 500 9 Years in a Row?
Over the past 12 months, we have gained +16% (August 18, 2009 to August 18th, 2010) compared to an 11.3% gain for the S&P 500 (blue line below) and a 4% gain for the EAFE international index (the green line below).
If our 12 month return is still ahead of the S&P 500 by January, we will have beaten the index nine years in a row.
Recent Purchases:
For what it’s worth, our most recent purchase was 220 shares of Johnson and Johnson, at $58.49 per share.
We’re patient. And we’re committed.
When we own a stock, and it goes down in value, we celebrate—and try to buy more.
I’m not sure whether we’ll keep beating the market, but we’ve seen enough to know that with patience, diligence and humility, it might be possible.
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10 comments
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Andrew Hallam says:
August 19, 2010 at 7:21 pm (UTC 8 )
I suppose I should mention that our investors add all kinds of different sums to the account nowadays. I think our largest single deposit was $18,000 from a single member.
Financial Cents says:
August 19, 2010 at 11:00 pm (UTC 8 )
Great post Andrew – I like hearing these types of stories. It helps the lil’ investor like me see some light at the end of my own investment tunnel.
I would like to ask, what are the tax implications/complications of this – pooling the money?
The Biz of Life says:
August 20, 2010 at 12:06 am (UTC 8 )
What is your process to make buy/sell decisions in this club? What if there is disagreement?
Kevin@InvestItWisely says:
August 20, 2010 at 12:07 am (UTC 8 )
Very interesting. I believe that while it may be possible to beat the index through your own initiative, hard work, and research, I still have my doubts on paying someone else to do so. A few disciplined investors such as yourself may just be able to do it, though!
Everyday Tips says:
August 20, 2010 at 1:43 am (UTC 8 )
Great job! I wish my 401k had done as well. I will take 7 percent any day of the week!
Andrew Hallam says:
August 20, 2010 at 3:34 am (UTC 8 )
@Financial Cents
Great question about taxes Mark:
The online tracking system we have is amazing. It calculates capital gains and dividend liabilities for each person. We get a single T5 form representing the Investment Club as a “Non Profit entity”, as all investment clubs are, but we’re ultimately responsible for honesty when filing our individual tax responsibilities. My accountant said that most people in investment clubs don’t declare their profits. But they should, of course. It gets murkier for revenue Canada to trace that kind of money because investment clubs are registered as “non profits”. However, when I hand out the individual forms (tax forms we can download from Bivio) to investors, via email, suggesting what capital gains and dividends each individual is responsible for, it’s their moral/legal responsibility to declare it.
In terms of capital gains taxes (on a slightly different note) this account has been incredibly effficient. Our portfolio turnover has averaged less than 10% annually, so it’s very efficient as a long term hold. Some years, we have 0% turnover.
Andrew Hallam says:
August 20, 2010 at 3:42 am (UTC 8 )
@The Biz of Life
Hey Biz,
What started out as a tight little group all working at the same school has morphed into something quite different. Many of our members moved away, and some new people joined us–so we have original members on Vancouver Island, we have a member in South Africa (she was one of our original members) we have a member in Amsterdam, and a few expats in Singapore.
When we met monthly in the same locale, we had votes pertaining to what we’d buy and sell. Now that we’re scattered, and one member has continued to be very keen on the research, it goes something like this, via email:
That especially keen member emails everyone and says:
“I suggest we buy J&J, 220 shares, at $58. Any dissenters?”
If nobody disagrees, the purchase gets made.
Andrew Hallam says:
August 20, 2010 at 3:45 am (UTC 8 )
@Kevin@InvestItWisely
Kevin,
You’re 100% right. Imagine paying someone 2.5% to try and beat the index. And then if you sell early, the advisor gets a back-end load.
That’s the typical investor in the typical mutual fund in Canada. Highway robbery.
Andrew Hallam says:
August 20, 2010 at 3:50 am (UTC 8 )
@Everyday Tips
Thanks Everyday Tips:
We’ll take it too. But it’s funny. Coming soon (whether it’s this year, next year or a year later) we will have a losing year, compared to the market indexes. I just hope, as investors, we don’t get excited and want to change our core strategy. I sure won’t, but as a group, you never know. Most of our members probably think we should always beat the market. It’s strange how we can be affected by expectations or (if you want to be critical of our success) fooled by randomness.
Financial Cents says:
August 22, 2010 at 11:56 pm (UTC 8 )
Thanks for the response Andrew. Yes, absolutely, people in investment clubs should declare their profits/declare taxes, but I guess “should” and “do” are two different things!
Sounds like you guys have a great lil’ system going, keep up the great results. Thanks for sharing!
Cheers,
Mark
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Investment Club’s Shares Disappear – Again! » Andrew Hallam says:
August 4, 2011 at 12:12 pm (UTC 8 )
[...] We already have roughly $45,000 invested in JNJ, but I believe that, at roughly $63 per share, it’s offering itself at a very good price. The last time we bought JNJ shares, they were priced at $58.49, which you can read about here: [...]