How well do you think investment clubs perform?
A) 60%-67% of investment clubs outperform the overall stock market.
B) 60%-67% of investment clubs underperform the overall stock market.
The financial press has made frequent claims suggesting that 60%-67% of investment clubs beat the market. If true, this figure would be quite impressive since most mutual funds, which are run by professionals, do not routinely beat the market. However, it is unlikely that these figures accurately reflect the performance of most investment clubs. You see, the numbers come from annual surveys of clubs by the NAIC. This presents many potential issues that might affect accuracy.
First, it is assumed that the clubs accurately calculate their returns. Next, which clubs respond to the survey? If you were the treasurer of a club, when would you respond to the survey by the NAIC? You would be far more likely to fill out the survey if your club’s returns were high and avoid completing the survey if the returns were low. Indeed, only 5%-10% of clubs return the NAIC survey. It is most likely that these clubs are the ones that calculated a high return. Therefore, the survey results represent only the more successful clubs (at best) and are probably totally misrepresentation of all clubs (at worst).
To get a more objective view of investment club performance, the actual stock holdings of 166 investment clubs using a national discount broker were examined over a five-year period. The results were not nearly as impressive as the 60%-67% figure suggests. During the same five-year period, the S&P 500 Index earned an average 18% return annually. The clubs averaged a gross return of 17% per year. The return net of expenses, however, was only 14.1%. Thus, the clubs substantially underperformed the market.
In examining the true success of investment clubs, it is difficult to rationalize why one would join, versus parking their funds in an index. While most of your run-of-the-mill investors are more interested in the bottom line or the net return, there are investors throughout the world who are aware of the risks and enjoy taking a gamble. As with any risk, the potential reward is what motivates a person to take the risk in the first place. However, with any degree of risk, there is always a potential downside that must be accounted for as well. So if we assume the statistics in the first paragraph are correct, and we factor in that only approximately 10% of clubs return the NAIC survey; then it would appear that the other 90% of investment clubs who chose not return the survey either had sub-par results or underperformed the market.
While it may seem exciting to accept the additional risk of an investment club, it is important to factor in the additional details and risks involved. Additionally, as with anything new, there will almost always be some learning curve involved. Unfortunately, the learning curve is where most investors accept too much risk and don’t reap the necessary rewards. This often leads to disappointment and potentially substantial losses that either causes serious damage or depletes an investor’s portfolio altogether.
While there are undoubtedly some successful investment clubs, the Gorilla thought it was important to shine a true investigatory light on the subject. And while there are many investment clubs that actually use GorillaTrades’ advice for the benefit of their group; as admitted by the participants, they do not fully follow the Gorilla’s recommendations.
Whether or not you have ever been a part of an investment group or taken on additional unnecessary risk, it is easy to see how a simple risk-controlled investment system can help investors make the right decisions in the marketplace. So for the investors who want to be in control of their own destiny, but are interested in taking calculated risks, the GorillaTrades system may be exactly what you are looking for.
While all investing does involve some degree of risk, it is critical to be able to assess objectively the level of risk involved. GorillaTrades can help investors of all experience levels to pursue a more calculated approach to investing, with the results to back it up. GorillaTrades takes the guesswork out of investing by telling you which specific stocks have the highest potential for capital appreciation, and then clearly explains EXACTLY when to enter into the position, and when to exit.
Don’t roll the dice on your financial future; let GorillaTrades’ market-tested system and expert market advice help you invest like a gorilla!