Lessons from the Busted Flush Investment Club
Nearly 20 years ago, I helped a group of friends start an investment club.
We were regulars at a friendly poker game, so we named our venture the Busted Flush Investment Club. My hope was that I could interest these guys—they were all guys—in learning more about investing. The idea of investment clubs has been around for many decades, and some individual clubs have kept going for years.
In the case of the Busted Flush Investment Club, the learning was probably more about human nature than about investing per se.
The idea was that we’d each kick in $20 a week, discuss potential investments, and watch our money grow. All was well for a few months, while we built our capital sufficiently to actually buy something.
It was then that the differences in risk tolerance, investment temperament, time horizons, and attention spans began to surface.
Some of the guys were clearly delegators: When it came to discussing investment ideas, their attitude was, “You pick it.” Or, sometimes, “Shut up and deal.”
Some guys—not surprisingly, perhaps, for a group of poker players—were in the “take a flyer” camp. One of these guys was interested in trading options or gold mining stocks, and another favored fledgling tech stocks. I tended to like out-of-favor “value stocks” of companies with actual earnings and some track record, an approach that some of my pals considered way too boring.
As time passed and stock prices generally kept rising, I grew more cautious and advocated putting some of the money into bond mutual funds. This seemed way too conservative for some of my fellow club members.
My caution demonstrated the difficulty of timing the markets. Based on historical yardsticks, perhaps, stock prices were getting pretty lofty and the stock market may have been “too high.” But the stock market kept rising for a few more years until the bear market of 2000–2002 came along. When we looked back on this period recently, one of my friends reminded me that there’s a word for predictions that turn out to be a few years “early.”
That word is “wrong.”
At any rate, after a few years, we disbanded the Busted Flush Investment Club, paying out the capital along with accumulated gains and income we had earned. Earning a positive return was no big achievement in the midst of a bull market, and we didn’t keep pace with the market as a whole.
On the educational front, well, the club never ignited a serious interest in investing among our little group. It’s probably a mistake to try to combine two activities at once—especially among a group that formed to play cards, not to learn about and select investments. And, frankly, recordkeeping and tax reporting were a chore that I was all too happy to give up.
Still, the investment club wasn’t a terrible experience. And, although our weekly game ended years ago, we’re still friends, and still get together once or twice a year for sessions that are more like class reunions than poker games.
Notes:
• All investments are subject to risks. Investments in bond funds are subject to interest rate, credit, and inflation risk. Funds that concentrate on a relatively narrow market sector face the risk of higher share-price volatility.
• Past performance is no guarantee of future results.
I’m with Craig. I learned from many years of experience that making group decisions, especially when it comes to money, is difficult. The temptation to try to time the market is great and it took me a while to learn that the odds of success are against me. I have taken Vanguard’s recommendations to consider risk and stay the course. While not happy with what has happened to my Vanguard mutual funds in the past year or two due to the slumping economy, I am sure I have done the right things investment wise and will stay the course.
Men, especially retired men, should participate in poker nights and other social events because it helps to promote good health. This is one of the factors why women generally live longer.
GROUPS AND COMMITITIES NEVER ENTIRELY AGREE ON ANYTHING IN TOTAL.
MAKE YOUR OWN DECISIONS AND LIVE OR DIE BY THEM!!!!
Well thats life -just getting together with friends to socialize-then comes the attempt to influence others-I find that too much energy goes into words and not actions-so a caution- develop your style for anything in life and then take others advice under consideration while simply listening to them.
Stock investing requires a lot of up-front work, only then can you make decisions, and who are those that are best suited to go through the drudgery–women are! I would say that your club didn’t have too much promise right from day one.
Nervous Nellie nor Nervous Nick
Never a stock should try to pick.
I tell my friends who ask for advice
Never invest a cent if you cannot pay the price!
Price of living daily without fear
That your stocks are tanking-OH! DEAR!
I always thought that I would like to be part of an investment group, but I never had the opportunity to do so. There was one at my place of employment, but it existed during a time in my life when I wasn’t interested in doing it. I know that when they had their “meetings” (I don’t know how often they met) one of the members was supposed to do some sort of research on a topic that would help to educate everyone in the group on some aspect of investing–whether is be on a particular stock or mutual fund or a potential company to invest in. Everyone had their chance to do this. It was a way of contributing something to the group–other than just money. If the opportunity comes around again, I may just give it a try!
If investing as group makes you uneasy, you might still form an investment club used more as a buddy system. Meet weekly to make sure all members are contributing regularly to their separate, individual investments.
I have been in an investment club for a year now, I guess it is more of a partnership because there are only two of us but so far it is working well. I think the reason it is working well is because we spent a lot of time in the beginning writing down a lot of rules and regulations for us to follow. It is always easier to smooth out differences before money is involved.
Second thing that we have done is instead of meeting weekly we are meeting/trading only four times a year. That way between our jobs, families, and hobbies we are able to work at our own pace, which again reduces the stress put onto each member.
Like stated above it has been a very educational year…Good Luck!!!
I wish I was Suze Oman and knew how to invest, when to sell etc., You woul dthink working for a bank for 30 years, I would have learned something. But no, all I learned was buy low sell high. Which means you have to have the time to watch the market 24/7 – who has the time for that, and how can you trust an investor not to loose your savings.
All I want is a high interest savings – any ideas out there?
The temptation to try to time the market is great and it took me a while to learn that the odds of success are against me. I have taken Vanguard’s recommendations to consider risk and stay the course.