pseudoiterative wrote: Fri Sep 12, 2025 1:05 am
snic wrote: Thu Sep 11, 2025 1:21 pm
I remember, 35 or 40 years ago, people used to form investment clubs with their friends and neighbors. They’d research companies as thoroughly as they could, discuss their findings, and then pick a couple of stocks to invest in as a group. But who does that anymore?
Tangentially to the point you’re making – I’d never heard of investment clubs before, but also read about them for the first time recently in Shiller’s book Irrational Exuberance. Shiller mentioned investment clubs in a discussion about public attention to the market, and how the level of attention varies over time:
The Beardstown Ladies investment club is infamous. Used as an informal case study all the time.
I don’t think they set out to deceive. Rather, they didn’t understand the math and how to calculate returns correctly.
The NAIC [National Association of Investors Corporation] was founded in 1951 by four investor clubs at the beginning of the 1950s bull market; the number of clubs grew to 953 by 1954, reached a peak of 14,102 in 1970 (near the top of the market), and fell with the market to 3,642 in 1980 (near the bottom of the market), a drop of 74%. By 1999, the number of clubs rose up well beyond its prior peak, to 37,129. But by 2004, the number of clubs fell to 23,260, a drop of 37%. The crude conformity of the number of investment clubs to the performance of the market is noteworthy, confirming that investors’ attention is indeed attracted by bull markets and deflected by bear markets.
I’d argue that this Bogleheads forum is a kind of investment club, although one focused around another strategy, passive low cost index investing, not stock-picking or equity valuation. Maybe in-person local investment clubs have been displaced by niche interest groups that form and spread across the internet — bulletin boards, forums, and more recently across social media, subreddits, twitter, etc.
Bogleheads is a cult A bit like attending AA Teasing aside, it does have a series of very AA-sounding-like maxims which you identify:
– minimise costs – expense ratios but also taxes
– don’t market time nor trend follow. Set a long term asset allocation and stick to it regardless of market volatility
– [perhaps optional – consider your true risk tolerance very carefully, particularly once you are within 10 years of your intended retirement date]
– real returns not nominal returns. Calculated as geometric averages
Bogleheads is, for some of us, kind of a home away from home. A network of like-minded souls, bound together by common beliefs, dotted across the universe that is the Internets. So sort of a religion .
So we are stuck with the “safest” form of speculation, which is index fund investing. Yet because it’s still speculation, and also the swings in market price are amplified by other people’s rampant speculation, the sentiment expressed by the OP that “stock returns don’t compound” has an element of truth. Because I’ll keep them to maturity, the bonds in my portfolio are not going to lose (nominal) value, and the interest they earn will compound. The stock index funds I own, on the other hand, could crash at any minute and I’ll lose a big chunk of my life savings even though the value of the companies I indirectly own hasn’t changed.
Good distinction (bonds v stocks).
I would say if the value of the companies falls as much as it did, say, in 2008-9, it’s because the actual economic reality of those companies has altered by that much. GM or Chrysler really were worth less than their financial liabilities. Major financial institutions like RBS really had less value in their assets than they did liabilities in their deposits. The world economy really was going to experience a fall in trade volumes faster than it had in 1929-31.
This would also be true of major adverse changes in government policy or international conditions that are unlikely to be rectified in short to medium timeframes.
