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An Investment Club Update

by My Journey to Millions

Back in February of 2013 I started an investment club with 8 other buddies.  The idea was simple we would each put in $500 to start it up (creating an entity was the main expense) and then a monthly contribution of $100 thereafter.  I was worried about the longevity of the club at first, but after the first few rocky months everything has worked out fantastic.  Back in January I highlighted my investment club’s investment results:

  • Investment Gain for 2013 – 31.47%
  • Total Gain (with non-recurring start up costs) – 13.78%
  • S&P From 2/19/2013 to 12/31/2013 – 21.63% (when money was deposited)
  • S&P From 2/19/2013 to 12/31/2013 – 18.24% (our first trade)
  • We only closed out on 3 stocks (realizing the gains) – 119.57% ($367.49), 106.17% ($213.88) and 20.16% ($51.52)
  • Received $39.53 in dividends, but these weren’t reinvested in 2013 (will be in 2014 and beyond).

First and foremost, I am shocked this club is still in existence.  Yes, we have a few members who aren’t as “into” the market as I, and we have a few members who still can’t figure out how the facebook group board works (yes we are all in our 30s), but overall it has been a fantastic experience.  If we had started during a bear market I believe we would have formed to be something different.

I get two main benefits.  The first, is that I get to see different view points and learn about different topics.  These discussions have lead me to write about the differences between growth and value investors as well as teaching myself about advanced sales orders to protect profits.  The different view on the world brings me to the second benefit which is purely selfish.  I get to invest in stocks I would otherwise never touch if it wasn’t simply a one-ninth member.  I have said “yes” to stocks I would consider pure bets, solely, because I know I am not risking all that much of my money.  I am a conservative investor insofar as my main non-qualified investment portfolio is based on boring value metrics, so this provides a taste of something I’ll probably never be into fully with my own money.

Year to Date Investment Club Returns

I will get into a much more detailed analysis in January of 2015, but simply put:

  • Account Value on 12/31/2014 was $13,880
  • At close of market on 9/24/104 the account value was $22,342.
  • New money contributed was $8,100 (9 Members, $100/month, 9 Months)
  • Tax preparation paid $525
  • Account Value + New Money Contributed – Taxes = $21,455
  • So for all intent and purposes we are pretty flat year to date.  

This number is a little puzzling since have realized gains this year of $1,725 and unrealized gains of $1,319.  I have three non-mutually exclusive hypothesis.

  1. The first one is simple, I am calculating something wrong and someone should help me out!
  2. The second, all our built in unrealized gains was done last year and we are coasting.  This one is a little hard for me to believe since we have some stocks that are up way over 50%.
  3. Even though we have grown our assets the growth on our same risk taking ($750 to $1k chunks) means less to the portfolio.

Our January meeting should be interesting in terms of where we are taking the club.  Do we let new members in? Do we increase our lot purchases?  Do we create a speculate bucket vs a conservative bucket? Do we just continue since it seems to be working?

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writing2reality 09/25/2014 - 9:47 am

Well, I can’t solve the full problem without looking at all your statements/activity, but I can tell you for purposes of tracking the change in value over a period of time, the nature of gains don’t matter.

For example: Say I have $10,000 worth of stock with $2,000 of unrealized gains. If I sell half of stock, I end up with $10,000 of cash and equities. No change in the overall value (ignoring commissions of course), with now $1,000 of realized gain and $1,000 of unrealized gain.

Plus when looking at your year to date gains, remember, some of that fresh capital has only been in there for a month or two and hasn’t had time to “work” so to speak. I’d perform an XIRR calculation in excel, tracking the dates of deposits to determine your real return. Instead of 4% year-to-date (netting tax expense as a “cost”), it will likely be a couple ticks higher. Pulling out the tax expense, your actually returns might be closer to 8-10% year-to-date.

Either way, I’m glad things are going well with your investment club. Mine is still steaming along well. We have been able to avoid the costly tax expense because I’m able to prepare the tax return, so that has been a boost to our returns over the years. We will be finishing almost seventh calendar year of investing at the end of 2014.

Evan 09/25/2014 - 10:32 am

Excellent point on the unrealized/realized gain. I was/am blinded by those numbers. They are clear on the side of being up so it is frustrating when the YTD number is so low. Notwithstanding, I think your point that some of the money has been in there for 20 days is a fantastic point!

Why do the tax return? If there are 10 of you in the club you are opening yourself up liability wise to save only $50 of your own money?

7 years! That’s awesome. How have you handled growth? Have people joined/left?

Laurie Frederiksen 09/25/2014 - 11:11 am

Hi Evan,

Glad to hear you are having success in your investment club.

The suggestion to use XIRR to calculate your rate of growth is a good one.

It is a calculation which our investment club software does automatically for you on a report we call a performance benchmark report:


As you can see, not only do we calculate your rate of growth for various time periods, we also allow you to compare it against the rate of growth of the same investments at the same time in just about anything that has a ticker symbol. This is a truer apples to apples comparison than just comparing your growth to overall growth of, for example, an index over a year. The calculations you are comparing to then are based on different cash flows than you had in your club.

Our software also provides you with tax preparation for much less than you are paying an accountant. Since we specialize in investment club taxes, we have even found in some cases that it can be has been more accurate than tax returns clubs have had done by full service accountants.

Best of luck to your club!

Laurie Frederiksen


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