Lessons from the Busted Flush Investment Club

Posted by on July 21, 2009 @ 8:49 am in Investing

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.

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