April, 2014, I joined an investment club

I enjoy seeking short term returns from stocks. Active trading gives me the excuse to place crafty trading orders and check the market every day. The goal is to realize a profit from every stock in less than a year, resulting in a portfolio turnover rate of at least 100%.

I also enjoy the long term commitment to investing in index ETFs. I can sleep at night with the confidence of earning market returns. Plus I enjoy monitoring the health of the funds and checking the drift of portfolio holdings.

But I also want to know how to seek long term returns from stocks. That’s why I recently joined a local investment club. The broad objective of the club is to grow the market value of its stock portfolio by at least 15% a year, thereby doubling the value of its investments in 5 years. Another objective is to pay minimal taxes by avoiding short term returns. The turnover rate of a tax efficient portfolio should be less than 100%; the lower, the better.

The club is consistently challenged to discover new stocks while monitoring the performance of its stock holdings. I’ve been a member for only 2 months. My first two assignments are: 1) learn to use a toolkit that has an annual subscription rate of nearly $200. 2) partner with one of the other club members to perform a quarterly review of a stock holding.

The expensive toolkit is used to assess company management and the downside/upside risk of stock ownership. The risk assessment requires a forecast of share price and company earnings, which is impossible in the real world of unpredictable markets. Therefore, forecasting the downside and upside risk is an exercise in imagination. Yet the club seems to depend on a formal risk assessment to help make buy and sell decisions. Is there a better way?

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