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RE: [Behavioral-Finance] Re: Investment Clubs Debunked

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  • Bob Bronson
    Yes, if they dollar-cost average or other mechanical application of their cash flows, because otherwise they undoubtedly would effect buy and sell timing that
    Message 1 of 23 , Jul 31, 2004
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      Yes, if they dollar-cost average or other mechanical
      application of their cash flows, because otherwise
      they undoubtedly would effect buy and sell timing
      that underperforms a random walk down Wall Street.



      -----Original Message-----
      From: leif_ericssen [mailto:leif_ericssen@...]
      Sent: Saturday, July 31, 2004 12:28 PM
      To: Behavioral-Finance@yahoogroups.com
      Subject: [Behavioral-Finance] Re: Investment Clubs Debunked

      An investment club that buys index funds (in all asset
      classes they chose to invest in) would do very well for it's
      members.

      Jan

      --- In Behavioral-Finance@yahoogroups.com, Tom Smith
      <g_i_2_boocoo@y...> wrote:
      > I heard Peter Lynch give a speech once where he said
      something
      along the lines of "Most people don't belong in individual
      stocks but should, instead, be in a well managed mutual
      fund."
      >
      > Of course, most mutual funds underperform the market so,
      on
      average, the best most investors can hope for is to invest
      in a good no load S&P index fund where the total expense
      ratio is low - say 25 to 35 basis points or so - and can
      then expect a return equivalent to the S&P 500 minus
      whatever the total expense ratio is.
      >
      > The idea that Peter Lynch is so fond of - the individual
      investor
      who finds a great company close to home that he understands
      and invests in it and does well with on a long term basis -
      is something that still happens in our society, but for too
      many investors, I think, it's largely a myth, as borne out
      by the statistics you cited.
      >
      > But then, there are the folks who bought Berkshire
      Hathaway 5 (or
      10 or 25) years ago and who have thus far held on to it.
      >
      > All the best,
      >
      > Tom
      >
      http://finance.groups.yahoo.com/group/The_Intelligent_Invest
      or_/
      >
      >
      >
      > marketsci <email@m...> wrote:
      > I'm a bit overzealous on the subject of investor
      underperformance...
      > investors hold themselves up to the standards of indices
      such as
      the
      > S&P 500, but between mutual fund loads, high fees &
      expenses, the
      > failure of actively managed funds, greedy investment
      advisors/brokers,
      > etc. for 99% of investors, ever getting the "market
      return" is a pie
      > in the sky.
      >
      > And add one more timber to the fire... we recently
      completed a
      study
      > at MarketSci.com: "Investment Clubs Debunked". We found
      that on
      > average, investment clubs underperformed the market by a
      whopping 3.7%
      > a year before deducting for commissions, taxes, and other
      costs
      > of trading between 2001 and today. All so investors can
      enjoy
      > underperforming the market with their friends!
      >
      > http://www.marketsci.com/article_20040729_01.htm
      >
      > I'm posting this same message to a couple of forums to get
      some ideas
      > flowing... what are your thoughts? Why are these clubs so
      bad
      > and why do members continue to invest tens of billions of
      dollars into
      > them?
      >
      > MarketSci.com
      >
      >
      >
      >
      > you may unsubscribe by sending an email to
      >
      > Behavioral-Finance-unsubscribe@yahoogroups.com
      >
      >
      >
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    • Bob Bronson
      There is a predictable performance price to pay for the cost of the education that joining an investment club provides newbie and amateur investors. It is
      Message 2 of 23 , Jul 31, 2004
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        There is a predictable performance price to pay for
        the cost of the education that joining an investment
        club provides newbie and amateur investors.

        It is probably more than worth that underperformance
        price when the benefit of peer-pressured mandatory
        capital accumulation is taken into consideration.

        I'll bet the vast majority of people in investment
        clubs end up with more accumulated investment capital
        than they had accumulated before they joined.

        And even those who eventually quit their club may
        expand on their underperformance-paid-for education
        and continue to more effectively build an investment
        portfolio larger than if they never went through the
        entire join-learn-and-quit process.

        Bob Bronson
        Bronson Capital Markets Research




        -----Original Message-----
        From: leif_ericssen [mailto:leif_ericssen@...]
        Sent: Saturday, July 31, 2004 12:23 PM
        To: Behavioral-Finance@yahoogroups.com
        Subject: [Behavioral-Finance] Re: Investment Clubs Debunked

        OK, a 3.7% lag before taxes and transaction costs is a Huge
        spread, but I don't know how that figure was determined, so
        I can't really have an opinion. An opaque index of over
        10,000 clubs and $370 million in assets doesn't really tell
        me anything.

        I agree that investment clubs are probably not the way to
        seriously invest. It's not an environment where the best
        ideas are implemented and bad ideas are filtered but of who
        gets tired of arguing. I expect that few members of an
        investment club are street smart or sophisticated and it's
        likely that most members won't even have the basic knowledge
        of personal investing and finance.

        And with a population of 10,000 clubs and only $370 million
        in assets, it seems that investment club members support my
        common $ense view in the clearest way - with their dollars.
        (BTW, I don't assume there are $20 billion in club assets).

        IOW investment clubs are a side show and I wouldn't
        overgeneralise from their behaviour.

        That said, I'm in an investment club myself that follows a
        highly specialised strategy of options trading with holding
        assets with a low return co-variance. It has had problems
        with group dynamics (and conflict over goals and strategies)
        and even broke up once and then got back together with some
        less members.

        We seem to be on the right path now and things have worked
        out well. I'm sure that most other clubs have similar group
        problems, which is a key source of problems (ignorance is
        the other) and that clubs in general are a bad bet.

        Jan


        --- In Behavioral-Finance@yahoogroups.com, "marketsci"
        <email@m...>
        wrote:
        > I'm a bit overzealous on the subject of investor
        underperformance...
        > investors hold themselves up to the standards of indices
        such as
        the
        > S&P 500, but between mutual fund loads, high fees &
        expenses, the
        > failure of actively managed funds, greedy investment
        advisors/brokers,
        > etc. for 99% of investors, ever getting the "market
        return" is a pie
        > in the sky.
        >
        > And add one more timber to the fire... we recently
        completed a
        study
        > at MarketSci.com: "Investment Clubs Debunked". We found
        that on
        > average, investment clubs underperformed the market by a
        whopping 3.7%
        > a year before deducting for commissions, taxes, and other
        costs
        > of trading between 2001 and today. All so investors can
        enjoy
        > underperforming the market with their friends!
        >
        > http://www.marketsci.com/article_20040729_01.htm
        >
        > I'm posting this same message to a couple of forums to get
        some ideas
        > flowing... what are your thoughts? Why are these clubs so
        bad
        > and why do members continue to invest tens of billions of
        dollars into
        > them?
        >
        > MarketSci.com



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      • Bob Bronson
        The understatement by Bogle that the Vanguard experiment was not as successful as he thought it would have been is because he/they tried to capitalize on the
        Message 3 of 23 , Jul 31, 2004
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          The understatement by Bogle that "the Vanguard experiment
          was not as successful as he thought it would have been" is because
          he/they tried to capitalize on the S&P 500 index beating
          itself with several years of 20+% years in the late 1990s. 
           
          He/they couldn't restrain themselves to simply selling
          lower management fees and their predictable recent year's
          poor growth performance in both NAVs and in Vanguard
          assets under management explains why Bogle's statement
          and his pariah status in the industry is an understatement
          of his legacy problems, which false humility won't cure.

           

          Bob Bronson

          Bronson Capital Markets Research

           

           


          From: Allan Roth [mailto:allan_roth@...]
          Sent: Friday, July 30, 2004 9:59 PM
          To: Behavioral-Finance@yahoogroups.com
          Subject: Re: [Behavioral-Finance] Investment Clubs Debunked

          You probably had no business being a financial advisor - you have a conscience and sound like a good person who cares about others.  While I agree with you that investment clubs are probably mostly dangerous and money losers, I'm not sure they are any worse than those salespeople (I mean financial advisors) pushing hot stocks or funds or life insurance policies as investments.  There is one heck of a strong negative correlation between the compensation paid the "advisor" and the overall performance of the investment.
           
          I also agree with you on Bogle's success - though when I met with him last year, he told me the Vanguard experiment was not as successful as he thought it would have been.  Also, he has been more successful with institutions than individual investors, as a much greater percentage of institutional money is in passive (index, ETFs, and other passive) funds than for individuals.  After all, institutions act more out of logic rather than chasing the quick buck.  Jack Bogle, in my opinion, has done far more for investors than anyone and at 75 years old, with a new heart, and now on the "outs" at Vanguard, continues to crusade for investors.
           
          Nonetheless, investment clubs and slick investment salespeople will continue to thrive because we are all looking for short cuts to financial freedom and tend to believe what we want to believe.
           
          Allan
           
           
          ----- Original Message -----
          Sent: Friday, July 30, 2004 9:25 PM
          Subject: Re: [Behavioral-Finance] Investment Clubs Debunked

          And this is really where I think the answer lies.  People make poor investment decisions either (A) b/c of a lack of knowledge, or (B) b/c it’s “sexy”.  Empirical evidence and investor education can make some headway on (A) - just look at Bogle’s success in moving the markets away from actively managed funds.  (B) is a bit tougher b/c I think to some degree it’s human nature to want to invest in the sexy thing…just look at the cars we drive and the houses we live in…totally impractical, but really sexy.

           

          I don’t feel any pity for the guy (or gal) who invests w/ an investment club b/c it’s the sexy thing to do…he’s on his own.  I do feel pity for the naive investor who takes his little wad of hard-earned cash and invests in a club b/c “hey, two heads are better than one!”  The point of the original post was to demonstrate that in fact, on average, these guys are getting shafted to the tune of some pretty major dollars, and someone needs to throw up the red flag.

           

          BTW: Yes, I agree, Wall Street does prey on feelings and emotions.  In a long-ago past life, I worked as a financial advisor, AKA “a salesman with a neat title”.  I got out of the business b/c I just couldn’t get past the fact that we were selling completely illogical (albeit well-compensating) products - by scaring people into thinking they’d be eating cat food in their golden years!  Disability Insurance, VUL’s, and High-Load Funds for everyone!  Yippee!

           

          MarketSci.com


          From: Allan Roth [mailto:allan_roth@...]
          Sent: Friday, July 30, 2004 10:01 PM
          To:Behavioral-Finance@yahoogroups.com
          Subject: [SPAM] Re: [Behavioral-Finance] Investment Clubs Debunked

           

          The sub market performance is not limited to investment clubs and mutual funds.  Thirty years ago, a professional was more likely to beat the market, which was comprised mostly of individual investors.  Now that 90% of the $15 trillion US market cap. is professionally managed, they can't all beat the stock market.  Yet when it can't be verified, nearly every professional claims they beat the stock market (much like most people who claim they won money inLas Vegas ).  "Professional" investment managers live off the fact that most investors are looking for emotional well being rather than wealth accumulation.  If we all made financial decisions based on facts and logic with the sole goal of wealth maximization, then efficient markets would cease to exist because we would all be passive (not necessarily index) investors.

           

          It sure is lucky for Wall Street that we all make most of our daily decisions based on feelings and emotions rather than logic and facts.

           

          Allan

          ----- Original Message -----

          From: A.C.B.

          Sent: Friday, July 30, 2004 8:12 PM

          Subject: Re: [Behavioral-Finance] Investment Clubs Debunked

           

          I hhave found that Marketing can be a very useful tool in dealing with individual stock selection.  Analysing product performance using concepts such as  product life cycle, the nature of the target market, product, and competition can give you a good working idea of where the company stands and where it is going.  Financial analysis is basically an accounting approach  which is static and "colorless".Money is made in the short run.  The long run has averaged a rate of return of  about 7  (6.7) percent.  

          Tom Smith <g_i_2_boocoo@...> wrote:

          I heard Peter Lynch give a speech once where he said something along the lines of "Most people don't belong in individual stocks but should, instead, be in a well managed mutual fund."

           

          Of course, most mutual funds underperform the market so, on average, the best most investors can hope for is to invest in a good no load S&P index fund where the total expense ratio is low - say 25 to 35 basis points or so - and can then expect a return equivalent to the S&P 500 minus whatever the total expense ratio is.

           

          The idea that Peter Lynch is so fond of - the individual investor who finds a great company close to home that he understands and invests in it and does well with on a long term basis - is something that still happens in our society, but for too many investors, I think, it's largely a myth, as borne out by the statistics you cited.

           

          But then, there are the folks who boughtBerkshire Hathaway 5 (or 10 or 25) years ago and who have thus far held on to it.

          All the best,

           

          Tom

           

           

           

          marketsci <email@... > wrote:

          I'm a bit overzealous on the subject of investor
          underperformance...
          investors hold themselves up to the standards of indices such as the
          S&P 500, but between mutual fund loads, high fees & expenses, the
          failure of actively managed funds, greedy investment
          advisors/brokers, etc. for 99% of investors, ever getting
          the "market return" is a pie in the sky.

          And add one more timber to the fire... we recently completed a study
          at MarketSci.com: "Investment Clubs Debunked".  We found that on
          average, investment clubs underperformed the market by a whopping
          3.7% a year before deducting for commissions, taxes, and other costs
          of trading between 2001 and today.  All so investors can enjoy
          underperforming the market with their friends!

          http://www.marketsci.com/article_20040729_01.htm

          I'm posting this same message to a couple of forums to get some
          ideas flowing... what are your thoughts?  Why are these clubs so bad
          and why do members continue to invest tens of billions of dollars
          into them?

          MarketSci.com




          you may unsubscribe by sending an email to

          Behavioral-Finance-unsubscribe@yahoogroups.com



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        • leif_ericssen
          Not all financial advisors are con artists on a comission. One can charge clients straight oout for helping them to plan their finances and investments. That
          Message 4 of 23 , Jul 31, 2004
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            Not all financial advisors are con artists on a comission. One can
            charge clients straight oout for helping them to plan their finances
            and investments. That is an honest and valuable service w/o the
            conflict of interest that one should be compensated for.

            Jan

            --- In Behavioral-Finance@yahoogroups.com, "Allan Roth"
            <allan_roth@h...> wrote:
            > You probably had no business being a financial advisor - you have
            a conscience and sound like a good person who cares about others.
            While I agree with you that investment clubs are probably mostly
            dangerous and money losers, I'm not sure they are any worse than
            those salespeople (I mean financial advisors) pushing hot stocks or
            funds or life insurance policies as investments. There is one heck
            of a strong negative correlation between the compensation paid
            the "advisor" and the overall performance of the investment.
            >
            > I also agree with you on Bogle's success - though when I met with
            him last year, he told me the Vanguard experiment was not as
            successful as he thought it would have been. Also, he has been more
            successful with institutions than individual investors, as a much
            greater percentage of institutional money is in passive (index,
            ETFs, and other passive) funds than for individuals. After all,
            institutions act more out of logic rather than chasing the quick
            buck. Jack Bogle, in my opinion, has done far more for investors
            than anyone and at 75 years old, with a new heart, and now on
            the "outs" at Vanguard, continues to crusade for investors.
            >
            > Nonetheless, investment clubs and slick investment salespeople
            will continue to thrive because we are all looking for short cuts to
            financial freedom and tend to believe what we want to believe.
            >
            > Allan
            >
            >
            > ----- Original Message -----
            > From: Market Sci.com
            > To: Behavioral-Finance@yahoogroups.com
            > Sent: Friday, July 30, 2004 9:25 PM
            > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
            >
            >
            > And this is really where I think the answer lies. People make
            poor investment decisions either (A) b/c of a lack of knowledge, or
            (B) b/c it's "sexy". Empirical evidence and investor education can
            make some headway on (A) - just look at Bogle's success in moving
            the markets away from actively managed funds. (B) is a bit tougher
            b/c I think to some degree it's human nature to want to invest in
            the sexy thing.just look at the cars we drive and the houses we live
            in.totally impractical, but really sexy.
            >
            >
            >
            > I don't feel any pity for the guy (or gal) who invests w/ an
            investment club b/c it's the sexy thing to do.he's on his own. I do
            feel pity for the naive investor who takes his little wad of hard-
            earned cash and invests in a club b/c "hey, two heads are better
            than one!" The point of the original post was to demonstrate that
            in fact, on average, these guys are getting shafted to the tune of
            some pretty major dollars, and someone needs to throw up the red
            flag.
            >
            >
            >
            > BTW: Yes, I agree, Wall Street does prey on feelings and
            emotions. In a long-ago past life, I worked as a financial advisor,
            AKA "a salesman with a neat title". I got out of the business b/c I
            just couldn't get past the fact that we were selling completely
            illogical (albeit well-compensating) products - by scaring people
            into thinking they'd be eating cat food in their golden years!
            Disability Insurance, VUL's, and High-Load Funds for everyone!
            Yippee!
            >
            >
            >
            > MarketSci.com
            >
            >
            > -------------------------------------------------------------------
            -----------
            >
            > From: Allan Roth [mailto:allan_roth@h...]
            > Sent: Friday, July 30, 2004 10:01 PM
            > To: Behavioral-Finance@yahoogroups.com
            > Subject: [SPAM] Re: [Behavioral-Finance] Investment Clubs
            Debunked
            >
            >
            >
            > The sub market performance is not limited to investment clubs
            and mutual funds. Thirty years ago, a professional was more likely
            to beat the market, which was comprised mostly of individual
            investors. Now that 90% of the $15 trillion US market cap. is
            professionally managed, they can't all beat the stock market. Yet
            when it can't be verified, nearly every professional claims they
            beat the stock market (much like most people who claim they won
            money in Las Vegas). "Professional" investment managers live off
            the fact that most investors are looking for emotional well being
            rather than wealth accumulation. If we all made financial decisions
            based on facts and logic with the sole goal of wealth maximization,
            then efficient markets would cease to exist because we would all be
            passive (not necessarily index) investors.
            >
            >
            >
            > It sure is lucky for Wall Street that we all make most of our
            daily decisions based on feelings and emotions rather than logic and
            facts.
            >
            >
            >
            > Allan
            >
            > ----- Original Message -----
            >
            > From: A.C.B.
            >
            > To: Behavioral-Finance@yahoogroups.com
            >
            > Sent: Friday, July 30, 2004 8:12 PM
            >
            > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
            >
            >
            >
            > I hhave found that Marketing can be a very useful tool in
            dealing with individual stock selection. Analysing product
            performance using concepts such as product life cycle, the nature
            of the target market, product, and competition can give you a good
            working idea of where the company stands and where it is going.
            Financial analysis is basically an accounting approach which is
            static and "colorless".Money is made in the short run. The long run
            has averaged a rate of return of about 7 (6.7) percent.
            >
            > Tom Smith <g_i_2_boocoo@y...> wrote:
            >
            > I heard Peter Lynch give a speech once where he said something
            along the lines of "Most people don't belong in individual stocks
            but should, instead, be in a well managed mutual fund."
            >
            >
            >
            > Of course, most mutual funds underperform the market so, on
            average, the best most investors can hope for is to invest in a good
            no load S&P index fund where the total expense ratio is low - say 25
            to 35 basis points or so - and can then expect a return equivalent
            to the S&P 500 minus whatever the total expense ratio is.
            >
            >
            >
            > The idea that Peter Lynch is so fond of - the individual
            investor who finds a great company close to home that he understands
            and invests in it and does well with on a long term basis - is
            something that still happens in our society, but for too many
            investors, I think, it's largely a myth, as borne out by the
            statistics you cited.
            >
            >
            >
            > But then, there are the folks who bought Berkshire Hathaway 5
            (or 10 or 25) years ago and who have thus far held on to it.
            >
            > All the best,
            >
            >
            >
            > Tom
            >
            >
            http://finance.groups.yahoo.com/group/The_Intelligent_Investor_/
            >
            >
            >
            >
            >
            >
            >
            > marketsci <email@m...> wrote:
            >
            > I'm a bit overzealous on the subject of investor
            > underperformance...
            > investors hold themselves up to the standards of indices
            such as the
            > S&P 500, but between mutual fund loads, high fees &
            expenses, the
            > failure of actively managed funds, greedy investment
            > advisors/brokers, etc. for 99% of investors, ever getting
            > the "market return" is a pie in the sky.
            >
            > And add one more timber to the fire... we recently completed
            a study
            > at MarketSci.com: "Investment Clubs Debunked". We found
            that on
            > average, investment clubs underperformed the market by a
            whopping
            > 3.7% a year before deducting for commissions, taxes, and
            other costs
            > of trading between 2001 and today. All so investors can
            enjoy
            > underperforming the market with their friends!
            >
            > http://www.marketsci.com/article_20040729_01.htm
            >
            > I'm posting this same message to a couple of forums to get
            some
            > ideas flowing... what are your thoughts? Why are these
            clubs so bad
            > and why do members continue to invest tens of billions of
            dollars
            > into them?
            >
            > MarketSci.com
            >
            >
            >
            >
            > you may unsubscribe by sending an email to
            >
            > Behavioral-Finance-unsubscribe@yahoogroups.com
            >
            >
            >
            >
            >
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            >
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          • leif_ericssen
            *grins* Buffet has hardly been *quietly* toiling away! He has been known in the business and investment world since at least the 1980s. ... anyone and ...
            Message 5 of 23 , Jul 31, 2004
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              *grins* Buffet has hardly been *quietly* toiling away! He has been
              known in the business and investment world since at least the 1980s.

              --- In Behavioral-Finance@yahoogroups.com, Tom Smith
              <g_i_2_boocoo@y...> wrote:
              > >> Jack Bogle, in my opinion, has done far more for investors than
              anyone and
              > >> at 75 years old, with a new heart, and now on the "outs" at
              Vanguard, continues
              > >> to crusade for investors. <<
              >
              > I don't think I'd necessarily agree with you on that one, though I
              recognize Bogle's important contributions at Vanguard.
              >
              > Personally, I'd say that Warren Buffett has done more for
              investors than anyone I can think of. He and Bogle are about the
              same age, and Buffett has been quietly toiling away in Omaha for the
              last 45 years or so, making one investment decision after another
              and making lots of people, including himself and those willing to
              take a long term view of investing in Berkshire Hathaway, very
              wealthy in the process.
              >
              > Buffett is an outspoken and articulate critic of the cottage
              industry espousing the random walk theory, and for those who are
              willing to do a little research and reading before they invest their
              hard earned money, over the years he's provided thought provoking,
              insightful and cogent interviews and essays about investing. Here's
              one of them:
              >
              > http://www-
              1.gsb.columbia.edu/valueinvesting/research/public_archives/DOC032.PDF

              >
              > The only way you can get Warren Buffett to manage your money for
              you is to buy shares of Berkshire Hathaway, and those willing to
              invest alongside him have done astonishingly well.
              >
              > I hope this copies over okay, but here's a chart going back 15
              years comparing BRKA to the S&P 500 .. and obviously, since you only
              have to pay commissions on buying BRKA once, which are paltry given
              the stock's share price of $90,000 or so per share, the transaction
              costs are virtually nonexistent.
              >
              > http://finance.yahoo.com/q/bc?s=BRKa&t=my&l=off&z=l&q=l&c=^GSPC
              >
              > All the best,
              >
              > Tom
              > http://finance.groups.yahoo.com/group/The_Intelligent_Investor_/
              >
              >
              >
              >
              > Allan Roth <allan_roth@h...> wrote:
              > v\:* { BEHAVIOR: url(#default#VML)}o\:* { BEHAVIOR: url
              (#default#VML)}w\:* { BEHAVIOR: url(#default#VML)}shape {
              BEHAVIOR: url(#default#VML)}st1\:*{behavior:url
              (#default#ieooui) }You probably had no business being a financial
              advisor - you have a conscience and sound like a good person who
              cares about others. While I agree with you that investment clubs
              are probably mostly dangerous and money losers, I'm not sure they
              are any worse than those salespeople (I mean financial advisors)
              pushing hot stocks or funds or life insurance policies as
              investments. There is one heck of a strong negative correlation
              between the compensation paid the "advisor" and the overall
              performance of the investment.
              >
              > I also agree with you on Bogle's success - though when I met with
              him last year, he told me the Vanguard experiment was not as
              successful as he thought it would have been. Also, he has been more
              successful with institutions than individual investors, as a much
              greater percentage of institutional money is in passive (index,
              ETFs, and other passive) funds than for individuals. After all,
              institutions act more out of logic rather than chasing the quick
              buck. Jack Bogle, in my opinion, has done far more for investors
              than anyone and at 75 years old, with a new heart, and now on
              the "outs" at Vanguard, continues to crusade for investors.
              >
              > Nonetheless, investment clubs and slick investment salespeople
              will continue to thrive because we are all looking for short cuts to
              financial freedom and tend to believe what we want to believe.
              >
              > Allan
              >
              >
              > ----- Original Message -----
              > From: Market Sci.com
              > To: Behavioral-Finance@yahoogroups.com
              > Sent: Friday, July 30, 2004 9:25 PM
              > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
              >
              >
              >
              > And this is really where I think the answer lies. People make
              poor investment decisions either (A) b/c of a lack of knowledge, or
              (B) b/c it's "sexy". Empirical evidence and investor education can
              make some headway on (A) - just look at Bogle's success in moving
              the markets away from actively managed funds. (B) is a bit tougher
              b/c I think to some degree it's human nature to want to invest in
              the sexy thing…just look at the cars we drive and the houses we live
              in…totally impractical, but really sexy.
              >
              >
              >
              > I don't feel any pity for the guy (or gal) who invests w/ an
              investment club b/c it's the sexy thing to do…he's on his own. I do
              feel pity for the naive investor who takes his little wad of hard-
              earned cash and invests in a club b/c "hey, two heads are better
              than one!" The point of the original post was to demonstrate that
              in fact, on average, these guys are getting shafted to the tune of
              some pretty major dollars, and someone needs to throw up the red
              flag.
              >
              >
              >
              > BTW: Yes, I agree, Wall Street does prey on feelings and
              emotions. In a long-ago past life, I worked as a financial advisor,
              AKA "a salesman with a neat title". I got out of the business b/c I
              just couldn't get past the fact that we were selling completely
              illogical (albeit well-compensating) products - by scaring people
              into thinking they'd be eating cat food in their golden years!
              Disability Insurance, VUL's, and High-Load Funds for everyone!
              Yippee!
              >
              >
              >
              > MarketSci.com
              >
              > ---------------------------------
              >
              >
              > From: Allan Roth [mailto:allan_roth@h...]
              > Sent: Friday, July 30, 2004 10:01 PM
              > To: Behavioral-Finance@yahoogroups.com
              > Subject: [SPAM] Re: [Behavioral-Finance] Investment Clubs Debunked
              >
              >
              >
              >
              > The sub market performance is not limited to investment clubs and
              mutual funds. Thirty years ago, a professional was more likely to
              beat the market, which was comprised mostly of individual
              investors. Now that 90% of the $15 trillion US market cap. is
              professionally managed, they can't all beat the stock market. Yet
              when it can't be verified, nearly every professional claims they
              beat the stock market (much like most people who claim they won
              money in Las Vegas). "Professional" investment managers live off
              the fact that most investors are looking for emotional well being
              rather than wealth accumulation. If we all made financial decisions
              based on facts and logic with the sole goal of wealth maximization,
              then efficient markets would cease to exist because we would all be
              passive (not necessarily index) investors.
              >
              >
              >
              >
              >
              > It sure is lucky for Wall Street that we all make most of our
              daily decisions based on feelings and emotions rather than logic and
              facts.
              >
              >
              >
              >
              >
              > Allan
              >
              >
              > ----- Original Message -----
              >
              >
              > From: A.C.B.
              >
              >
              > To: Behavioral-Finance@yahoogroups.com
              >
              >
              > Sent: Friday, July 30, 2004 8:12 PM
              >
              >
              > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
              >
              >
              >
              >
              >
              > I hhave found that Marketing can be a very useful tool in dealing
              with individual stock selection. Analysing product performance
              using concepts such as product life cycle, the nature of the target
              market, product, and competition can give you a good working idea of
              where the company stands and where it is going. Financial analysis
              is basically an accounting approach which is static
              and "colorless".Money is made in the short run. The long run has
              averaged a rate of return of about 7 (6.7) percent.
              >
              > Tom Smith <g_i_2_boocoo@y...> wrote:
              >
              > I heard Peter Lynch give a speech once where he said something
              along the lines of "Most people don't belong in individual stocks
              but should, instead, be in a well managed mutual fund."
              >
              >
              >
              >
              >
              > Of course, most mutual funds underperform the market so, on
              average, the best most investors can hope for is to invest in a good
              no load S&P index fund where the total expense ratio is low - say 25
              to 35 basis points or so - and can then expect a return equivalent
              to the S&P 500 minus whatever the total expense ratio is.
              >
              >
              >
              >
              >
              > The idea that Peter Lynch is so fond of - the individual investor
              who finds a great company close to home that he understands and
              invests in it and does well with on a long term basis - is something
              that still happens in our society, but for too many investors, I
              think, it's largely a myth, as borne out by the statistics you cited.
              >
              >
              >
              >
              >
              > But then, there are the folks who bought Berkshire Hathaway 5 (or
              10 or 25) years ago and who have thus far held on to it.
              >
              >
              > All the best,
              >
              >
              >
              >
              >
              > Tom
              >
              >
              > http://finance.groups.yahoo.com/group/The_Intelligent_Investor_/
              >
              >
              >
              >
              >
              >
              >
              >
              >
              >
              >
              > marketsci <email@m...> wrote:
              >
              >
              > I'm a bit overzealous on the subject of investor
              > underperformance...
              > investors hold themselves up to the standards of indices such as
              the
              > S&P 500, but between mutual fund loads, high fees & expenses, the
              > failure of actively managed funds, greedy investment
              > advisors/brokers, etc. for 99% of investors, ever getting
              > the "market return" is a pie in the sky.
              >
              > And add one more timber to the fire... we recently completed a
              study
              > at MarketSci.com: "Investment Clubs Debunked". We found that on
              > average, investment clubs underperformed the market by a whopping
              > 3.7% a year before deducting for commissions, taxes, and other
              costs
              > of trading between 2001 and today. All so investors can enjoy
              > underperforming the market with their friends!
              >
              > http://www.marketsci.com/article_20040729_01.htm
              >
              > I'm posting this same message to a couple of forums to get some
              > ideas flowing... what are your thoughts? Why are these clubs so
              bad
              > and why do members continue to invest tens of billions of dollars
              > into them?
              >
              > MarketSci.com
              >
              >
              >
              >
              > you may unsubscribe by sending an email to
              >
              > Behavioral-Finance-unsubscribe@yahoogroups.com
              >
              >
              >
              >
              >
              > ---------------------------------
              >
              >
              > Do you Yahoo!?
              > Read only the mail you want - Yahoo! Mail SpamGuard.
              >
              > you may unsubscribe by sending an email to
              >
              > Behavioral-Finance-unsubscribe@yahoogroups.com
              >
              >
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              >
              >
              >
              >
              > you may unsubscribe by sending an email to
              >
              > Behavioral-Finance-unsubscribe@yahoogroups.com
              >
              >
              >
              >
              >
              > you may unsubscribe by sending an email to
              >
              > Behavioral-Finance-unsubscribe@yahoogroups.com
              >
              >
              >
              >
              >
              >
              >
              > you may unsubscribe by sending an email to
              >
              > Behavioral-Finance-unsubscribe@yahoogroups.com
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            • Jean
              If Buffett wanted to spend all of his time giving media interviews and none of his time picking stocks he could easily do so. And he s been widely followed by
              Message 6 of 23 , Jul 31, 2004
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                If Buffett wanted to spend all of his time giving media interviews
                and none of his time picking stocks he could easily do so. And he's
                been widely followed by the media since the 1970's. The fact that he
                chooses to live in Omaha, instead of New York or Beverly Hills, and
                largely ignores the media, says a lot about him and his values.

                And I don't think Bogle was the first person to realize the value of
                S&P index funds either. Wells Fargo was a major entity in developing
                index funds for the pension fund assets it managed back in the 80's.
                In fact, didn't Wells Fargo have a larger share of the S&P index
                fund market at that time than Vanguard and Fidelity combined, or am
                I mistaken?

                J.V.




                --- In Behavioral-Finance@yahoogroups.com, "leif_ericssen"
                <leif_ericssen@y...> wrote:
                > *grins* Buffet has hardly been *quietly* toiling away! He has
                been
                > known in the business and investment world since at least the
                1980s.
                >
                > --- In Behavioral-Finance@yahoogroups.com, Tom Smith
                > <g_i_2_boocoo@y...> wrote:
                > > >> Jack Bogle, in my opinion, has done far more for investors
                than
                > anyone and
                > > >> at 75 years old, with a new heart, and now on the "outs" at
                > Vanguard, continues
                > > >> to crusade for investors. <<
                > >
                > > I don't think I'd necessarily agree with you on that one, though
                I
                > recognize Bogle's important contributions at Vanguard.
                > >
                > > Personally, I'd say that Warren Buffett has done more for
                > investors than anyone I can think of. He and Bogle are about the
                > same age, and Buffett has been quietly toiling away in Omaha for
                the
                > last 45 years or so, making one investment decision after another
                > and making lots of people, including himself and those willing to
                > take a long term view of investing in Berkshire Hathaway, very
                > wealthy in the process.
                > >
                > > Buffett is an outspoken and articulate critic of the cottage
                > industry espousing the random walk theory, and for those who are
                > willing to do a little research and reading before they invest
                their
                > hard earned money, over the years he's provided thought provoking,
                > insightful and cogent interviews and essays about investing.
                Here's
                > one of them:
                > >
                > > http://www-
                >
                1.gsb.columbia.edu/valueinvesting/research/public_archives/DOC032.PDF
                >
                > >
                > > The only way you can get Warren Buffett to manage your money for
                > you is to buy shares of Berkshire Hathaway, and those willing to
                > invest alongside him have done astonishingly well.
                > >
                > > I hope this copies over okay, but here's a chart going back 15
                > years comparing BRKA to the S&P 500 .. and obviously, since you
                only
                > have to pay commissions on buying BRKA once, which are paltry
                given
                > the stock's share price of $90,000 or so per share, the
                transaction
                > costs are virtually nonexistent.
                > >
                > > http://finance.yahoo.com/q/bc?s=BRKa&t=my&l=off&z=l&q=l&c=^GSPC
                > >
                > > All the best,
                > >
                > > Tom
                > > http://finance.groups.yahoo.com/group/The_Intelligent_Investor_/
                > >
                > >
                > >
                > >
                > > Allan Roth <allan_roth@h...> wrote:
                > > v\:* { BEHAVIOR: url(#default#VML)}o\:* { BEHAVIOR: url
                > (#default#VML)}w\:* { BEHAVIOR: url(#default#VML)}shape {
                > BEHAVIOR: url(#default#VML)}st1\:*{behavior:url
                > (#default#ieooui) }You probably had no business being a financial
                > advisor - you have a conscience and sound like a good person who
                > cares about others. While I agree with you that investment clubs
                > are probably mostly dangerous and money losers, I'm not sure they
                > are any worse than those salespeople (I mean financial advisors)
                > pushing hot stocks or funds or life insurance policies as
                > investments. There is one heck of a strong negative correlation
                > between the compensation paid the "advisor" and the overall
                > performance of the investment.
                > >
                > > I also agree with you on Bogle's success - though when I met
                with
                > him last year, he told me the Vanguard experiment was not as
                > successful as he thought it would have been. Also, he has been
                more
                > successful with institutions than individual investors, as a much
                > greater percentage of institutional money is in passive (index,
                > ETFs, and other passive) funds than for individuals. After all,
                > institutions act more out of logic rather than chasing the quick
                > buck. Jack Bogle, in my opinion, has done far more for investors
                > than anyone and at 75 years old, with a new heart, and now on
                > the "outs" at Vanguard, continues to crusade for investors.
                > >
                > > Nonetheless, investment clubs and slick investment salespeople
                > will continue to thrive because we are all looking for short cuts
                to
                > financial freedom and tend to believe what we want to believe.
                > >
                > > Allan
                > >
                > >
                > > ----- Original Message -----
                > > From: Market Sci.com
                > > To: Behavioral-Finance@yahoogroups.com
                > > Sent: Friday, July 30, 2004 9:25 PM
                > > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
                > >
                > >
                > >
                > > And this is really where I think the answer lies. People make
                > poor investment decisions either (A) b/c of a lack of knowledge,
                or
                > (B) b/c it's "sexy". Empirical evidence and investor education
                can
                > make some headway on (A) - just look at Bogle's success in moving
                > the markets away from actively managed funds. (B) is a bit
                tougher
                > b/c I think to some degree it's human nature to want to invest in
                > the sexy thing…just look at the cars we drive and the houses we
                live
                > in…totally impractical, but really sexy.
                > >
                > >
                > >
                > > I don't feel any pity for the guy (or gal) who invests w/ an
                > investment club b/c it's the sexy thing to do…he's on his own. I
                do
                > feel pity for the naive investor who takes his little wad of hard-
                > earned cash and invests in a club b/c "hey, two heads are better
                > than one!" The point of the original post was to demonstrate that
                > in fact, on average, these guys are getting shafted to the tune of
                > some pretty major dollars, and someone needs to throw up the red
                > flag.
                > >
                > >
                > >
                > > BTW: Yes, I agree, Wall Street does prey on feelings and
                > emotions. In a long-ago past life, I worked as a financial
                advisor,
                > AKA "a salesman with a neat title". I got out of the business b/c
                I
                > just couldn't get past the fact that we were selling completely
                > illogical (albeit well-compensating) products - by scaring people
                > into thinking they'd be eating cat food in their golden years!
                > Disability Insurance, VUL's, and High-Load Funds for everyone!
                > Yippee!
                > >
                > >
                > >
                > > MarketSci.com
                > >
                > > ---------------------------------
                > >
                > >
                > > From: Allan Roth [mailto:allan_roth@h...]
                > > Sent: Friday, July 30, 2004 10:01 PM
                > > To: Behavioral-Finance@yahoogroups.com
                > > Subject: [SPAM] Re: [Behavioral-Finance] Investment Clubs
                Debunked
                > >
                > >
                > >
                > >
                > > The sub market performance is not limited to investment clubs
                and
                > mutual funds. Thirty years ago, a professional was more likely to
                > beat the market, which was comprised mostly of individual
                > investors. Now that 90% of the $15 trillion US market cap. is
                > professionally managed, they can't all beat the stock market. Yet
                > when it can't be verified, nearly every professional claims they
                > beat the stock market (much like most people who claim they won
                > money in Las Vegas). "Professional" investment managers live off
                > the fact that most investors are looking for emotional well being
                > rather than wealth accumulation. If we all made financial
                decisions
                > based on facts and logic with the sole goal of wealth
                maximization,
                > then efficient markets would cease to exist because we would all
                be
                > passive (not necessarily index) investors.
                > >
                > >
                > >
                > >
                > >
                > > It sure is lucky for Wall Street that we all make most of our
                > daily decisions based on feelings and emotions rather than logic
                and
                > facts.
                > >
                > >
                > >
                > >
                > >
                > > Allan
                > >
                > >
                > > ----- Original Message -----
                > >
                > >
                > > From: A.C.B.
                > >
                > >
                > > To: Behavioral-Finance@yahoogroups.com
                > >
                > >
                > > Sent: Friday, July 30, 2004 8:12 PM
                > >
                > >
                > > Subject: Re: [Behavioral-Finance] Investment Clubs Debunked
                > >
                > >
                > >
                > >
                > >
                > > I hhave found that Marketing can be a very useful tool in
                dealing
                > with individual stock selection. Analysing product performance
                > using concepts such as product life cycle, the nature of the
                target
                > market, product, and competition can give you a good working idea
                of
                > where the company stands and where it is going. Financial
                analysis
                > is basically an accounting approach which is static
                > and "colorless".Money is made in the short run. The long run has
                > averaged a rate of return of about 7 (6.7) percent.
                > >
                > > Tom Smith <g_i_2_boocoo@y...> wrote:
                > >
                > > I heard Peter Lynch give a speech once where he said something
                > along the lines of "Most people don't belong in individual stocks
                > but should, instead, be in a well managed mutual fund."
                > >
                > >
                > >
                > >
                > >
                > > Of course, most mutual funds underperform the market so, on
                > average, the best most investors can hope for is to invest in a
                good
                > no load S&P index fund where the total expense ratio is low - say
                25
                > to 35 basis points or so - and can then expect a return equivalent
                > to the S&P 500 minus whatever the total expense ratio is.
                > >
                > >
                > >
                > >
                > >
                > > The idea that Peter Lynch is so fond of - the individual
                investor
                > who finds a great company close to home that he understands and
                > invests in it and does well with on a long term basis - is
                something
                > that still happens in our society, but for too many investors, I
                > think, it's largely a myth, as borne out by the statistics you
                cited.
                > >
                > >
                > >
                > >
                > >
                > > But then, there are the folks who bought Berkshire Hathaway 5
                (or
                > 10 or 25) years ago and who have thus far held on to it.
                > >
                > >
                > > All the best,
                > >
                > >
                > >
                > >
                > >
                > > Tom
                > >
                > >
                > > http://finance.groups.yahoo.com/group/The_Intelligent_Investor_/
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > > marketsci <email@m...> wrote:
                > >
                > >
                > > I'm a bit overzealous on the subject of investor
                > > underperformance...
                > > investors hold themselves up to the standards of indices such as
                > the
                > > S&P 500, but between mutual fund loads, high fees & expenses,
                the
                > > failure of actively managed funds, greedy investment
                > > advisors/brokers, etc. for 99% of investors, ever getting
                > > the "market return" is a pie in the sky.
                > >
                > > And add one more timber to the fire... we recently completed a
                > study
                > > at MarketSci.com: "Investment Clubs Debunked". We found that on
                > > average, investment clubs underperformed the market by a
                whopping
                > > 3.7% a year before deducting for commissions, taxes, and other
                > costs
                > > of trading between 2001 and today. All so investors can enjoy
                > > underperforming the market with their friends!
                > >
                > > http://www.marketsci.com/article_20040729_01.htm
                > >
                > > I'm posting this same message to a couple of forums to get some
                > > ideas flowing... what are your thoughts? Why are these clubs so
                > bad
                > > and why do members continue to invest tens of billions of
                dollars
                > > into them?
                > >
                > > MarketSci.com
                > >
                > >
                > >
                > >
                > > you may unsubscribe by sending an email to
                > >
                > > Behavioral-Finance-unsubscribe@yahoogroups.com
                > >
                > >
                > >
                > >
                > >
                > > ---------------------------------
                > >
                > >
                > > Do you Yahoo!?
                > > Read only the mail you want - Yahoo! Mail SpamGuard.
                > >
                > > you may unsubscribe by sending an email to
                > >
                > > Behavioral-Finance-unsubscribe@yahoogroups.com
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > > you may unsubscribe by sending an email to
                > >
                > > Behavioral-Finance-unsubscribe@yahoogroups.com
                > >
                > >
                > >
                > >
                > >
                > > you may unsubscribe by sending an email to
                > >
                > > Behavioral-Finance-unsubscribe@yahoogroups.com
                > >
                > >
                > >
                > >
                > >
                > >
                > >
                > > you may unsubscribe by sending an email to
                > >
                > > Behavioral-Finance-unsubscribe@yahoogroups.com
                > >
                > >
                > >
                > >
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