In 1999, I joined an investment club comprised of fellow school teachers.
We used the service at Bivio.com to track our returns. On the company homepage, they list the most popular holdings among America’s investment clubs. After thirteen years of accessing Bivio’s site, I noticed something interesting.
The most widely held stock by investment clubs is usually the biggest (or nearly the biggest) company in America. More than one third of investment clubs are drawn to the same monster market cap stock.
Should you follow their lead? Perhaps not.
According to a study by finance professors Brad Barber and Terrance Odean the average investment club underperformed the market by 3.8 percent from 1991-1997. Their love for market cap leaders could explain their lackluster performance.
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6 comments
Chris says:
January 23, 2013 at 8:22 pm (UTC 8 )
Does this article address the value of investments after dividends?
Andrew Hallam says:
January 24, 2013 at 3:05 pm (UTC 8 )
Hi Chris,
The study I referenced does consider total value, with all dividends included.
Ed says:
March 7, 2013 at 4:01 pm (UTC 8 )
Hi Andrew, can we use your strategy on EM Local currency Bonds such as LEMB or EMLC as the Bonds component in the total portfolio? Or Total World Bond is still the preferred Bond ETF? I do find their returns after tax and mgmt fee really low.
Andrew Hallam says:
March 8, 2013 at 7:52 am (UTC 8 )
Hi Ed,
I don’t know where you live or what your nationality is, so the question isn’t easy for me to answer.
The bond you choose should depend on your country of residence. It pays to keep a bulk of your money (if possible) in your home currency. If you are from the U.S., you could keep it in short term U.S. government bonds. If you are from Singapore, you may consider the fact that your CPF is a bond. In that case, you could just rebalance your equity indexes between themselves or try a value averaging approach to investing in those equity indexes. Many Singaporeans are mathematically inclined and would probably warm to this strategy of boosting returns: http://www.theglobeandmail.com/globe-investor/investment-ideas/strategy-lab/index-investing/lessons-in-investing-from-the-tour-de-france/article4627039/
If you’re Canadian, you could choose a short term Canadian government bond, like VSB.to.
Andrew
Ed says:
March 8, 2013 at 11:22 am (UTC 8 )
Hi Andrew,
Thanks for your reply. I am from Singapore and based here. Correct me if I am wrong, I think the CPF money cannot be retrieved once you deposit money into it and depending on the govt policy at that time, we can only take the CPF money back when we are above 65. Although the 4% interest is really attractive in today market.
What is your opinion of TIPs vs Short term US Govt bonds vs Asian Local currency bonds?
Much appreciated and thanks!
Ed
Andrew Hallam says:
March 8, 2013 at 12:13 pm (UTC 8 )
You are right. The money in a CPF can’t be retrieved once you deposited it. This is why I suggested a method of value averaging your stock ETFs. I suggest that any bonds you own should be (if possible) in the currency with which you pay your future bills. You could always get a higher yield elsewhere, but why take currency risk on a currency that might drop against the currency you will be paying your bills with?