When
I was at the BetterInvesting National convention last week, I talked to many
clubs about the Quest for Positive Relative Returns. There was a lot of
interest and many more groups signed up to participate. Several people
made the comment that they were a little bit nervous to find out how they
were doing. I think that is an interesting thought and not necessarily
that uncommon.
It’s
not easy to select investments. You might not be beating the
market. But, as I told one club when they saw their
results, the first step on making improvements is knowing where you
stand. Being in an investment club is an educational
opportunity. You can’t learn to invest if you don’t
actually make investments. Developing the skill to overcome the
psychology involved with placing your money in something with any
amount of risk is an important part of the learning process.
There
is a big difference between talking about making investments and actually
doing it. One of the main values of being in a club is that you
can learn with a smaller exposure to the risk of making mistakes because you
are pooling small amounts of money with others. If your clubs relative
returns are negative, look at them not as an indication of failure, but
as a measurement that will help you to focus on what is important. When
you’re managing a portfolio, you need boundaries within which to make
decisions. If you’re not beating the stock market, you
probably need to look at the parameters you’re using to set your
boundaries. That is why we do what we do. To learn how to pick
those parameters.
It
can be done. There are clubs that are consistently beating the market.
It’s a fun and interesting process to learn how to do what they are
doing. Let go of the fear that you might do something wrong and enjoy
the challenge of learning to do it right.