How To Boost Your Stock Market Investing Today

Transcription PNC Podcast Episode 428

How to Boost Your Stock Market Investing Now - Part 2

So I wanted to go through and kind of give you a summary of what we did over the last 30 years, kind of see how that looked and just give you a little better idea. So in 1993, a group of us had this idea. Seven of us started meeting monthly and we were all somehow affiliated with the hospital.

Several of us were doctors. One was, a couple of them were VPs at the hospital. One was an attorney and another was an accountant. And I was looking at my minutes from 1993 and we chose our officers in March of 1993. We selected the president. I was chosen as secretary.

And then one of the VPs from the hospital was appointed or elected as treasurer or volunteered really. And we decided at that point that we were going to do $100 contributions per month. And we were going to select an accounting software to keep track of all this because we didn't want to do it by hand, obviously.

And the first stock selection guide, SSG, was presented on April 12th of 1993 by me. And I was kind of taking the lead and learning how to use the SSG and I was sharing information. And I just wanted to learn about how to analyze a company stock.

We didn't buy anything at that point, but we were accumulating money and we had accumulated a little more than $2,000 by May 10th meeting. So that was two months after the March meeting. And with seven, you can do the math.

And we made our first purchase in July at the time of the July meeting, put in and we all agreed to purchase 100 shares of Stryker, which is a pretty well-known medical equipment manufacturer. It used to be known for beds and ortho implants and things. I'm not sure what they do now.

We've owned it, I think twice and sold it twice. We currently don't own it anymore. Now, just to fast forward to compare, we had seven. We did look for more members and we did have a lot of other members come through, come and go. Our current membership is 12. We have 12 members in the club right now.

But to give you an idea, over the years we've been doing this, we've had 14 people who came and left for whatever reasons and two of our former members subsequently died. Now, as I mentioned, just to clarify again, when people leave, they have a choice of remaining in the club, even though they're physically distant or just they're just leaving because they want to leave the club even though they're not moving away. And so we do now have the ability to join the meetings remotely, which we didn't have, of course, for about the first 10 or 15 years that we were in existence, maybe longer.

That's kind of how the club looks now. We've moved out of the hospital just recently, really. We were continuing to meet at the hospital for 30 plus years. And now we're meeting at one of our original members office and that's the attorney that is the president of the club. So what about the stocks? What have we done with the stocks?

I'm not going to go through every purchase, of course, and sale and so forth, but currently we own 20 stocks. I think you want to be diversified. So you don't want to have a large portfolio and only have five stocks, but you don't really want to get much more than 20.

We've been a little bit more than 20 at times, but when you have more than 20, think about it. If you have 20 stocks on average, it should be 5%. And in a portfolio, when you get something less than 5% in terms of its percent of the portfolio, it almost becomes not even worth tracking.

So we do have some stocks right now that are only at 1% or 2%, probably because they've gone down in value, but we have some big stocks that we've bought early in the club, like our largest holdings right now are Apple, and that's at 16.5% of the club assets. Google is 22.5% and Microsoft is 10.7%. And I think Microsoft is one of our earliest purchases. So we have obviously another 17 stocks.

Some are great, some are not so great. I think we have losses in two or three with the recent the markets went through a bit of a decline and now it's coming back up. And the ones that, those three that declined during the pullback recently just have not recovered yet.

We haven't sold them, obviously. They're still there because we expect them to at least recapture half of their losses because they are growing and their PEs are quite low. So we're going to hang on to those.

And at some point we might sell them if they don't seem to be fully recovering. Now, how has the performance been? Well, let's see. We do use something called My iClub that does the accounting for us. Well, it's a system we use for accounting. It has lots and lots of different reports.

There's a bunch of standard reports that we share every meeting. And then there's about 30 other reports that you can use if you like to compare parts of the portfolio and to analyze and to track. And one of the things we can do in that is we can look at the performance over time.

So let me give you some numbers on our club. So what I'm going to do is I'm going to compare the performance of our club, which is called the Superior Investment Club of Kankakee because we're meeting in Kankakee and founded this in Kankakee, Illinois. If you look at the acronym S-I-C-K, it means that says sick.

So it's kind of a joke that most of us, many of us were physicians when we started a club, but anyway, we'll just call it a Superior Investment Club. If you look at the one-year performance through the time of this recording, boy, our club is up 21.7%. That sounds really good. Now, the total stock market's up 23, though.

So we're actually lagging a little bit this last year. That typically happens when there's a downturn because the stocks that we own and a lot of clubs own tend to be fast growers. Most of them don't pay dividends, so they're actually like tech stocks, a lot of them, not all of them, obviously.

And so they go up faster in a bull market and they tend to go down faster. Basically, the beta is high if you know what the beta is, if not, look that up. And so when the market goes down, so when the market went down, ours went down further than the rest of the market, but when it comes back, it tends to go up higher.

So it's about at par for the past year. Now, in the three-year, the total stock market, and these might not be exactly the same as if you look up the averages, but this is from the software, and so it tracks these and it knows that we've been in business for 32 years, so it goes back and it actually matches the total stock market or the S&P.

Total stock market averaged 8.1% per year, in the past three years, and our portfolio was up 9.1% for three years on the average per year. If you go back five years, yeah, the average annual performance for the total stock market was 14.8. And for our club, it was 17.2. So that's over two percentage points. 10 years, total stock market was up 12.84%. And our portfolio was up 13.93%.

And then if you look at lifetime, which for us is a little over, I guess, 31, almost 32 years, the total stock market's up 8.6% per year during that time. And our performance for our stocks is 10.5%. So basically two full percentage points above. I think I did an analysis and found that for the 2% difference over a period of 30 years, putting in $100 per month amounts to about $100,000 in the difference in individual's performance, actually. So it's 2% accumulates because it's compounded over all those years.

So even one or a half percent improvement. Now, when I did the analysis and did some research on the number of investment clubs that beat those kinds of numbers the total stock market or the S&P, actually less than maybe 20% do that. So just because you're in an investment club and you're paying attention and you're meeting on a monthly basis doesn't mean that you're going to beat the S&P or the total market.

I'll give you some comments on what I think would lead to beating and how we've been able to beat the market, but I'll do that in a minute. But overall, our club has done well and we've had people leave, come and go and bought and sold multiple stocks. And whatever we're doing has led to a better performance on the money in the club to the extent people would take those recommendations and apply them on their own and maybe build their own portfolio.

And with 1,000 put in a month or 2,000, then they would have been that much further ahead. Here's what happened for me. And I just bring this up because I don't really want to talk about other members of the club per se. But for the first six years, we all consistently put in 100 per month. But in December of 1999, I started varying my contributions. And that month, I actually made a $500 contribution.

Now, there was some resistance to that. Some members just wanted to stick with the 100 for a couple of reasons. Maybe they're conservative anyway. Maybe they thought, yeah, it makes the paperwork a little easier 100 a month forever. Everything's based on that figure. But the software enables us to bring people in, start in the middle, start at 100. They don't make a contribution. It doesn't matter. We put it in, it all gets entered into the software.

And they're able to assign like a percentage of the club each month that gets updated based on the current value of the stocks. And everything's kept very clean and accurate in terms of how much you own. And if the market goes up 5%, how much does the club go up and what's each person's part of that.

And that comes in very handy when they decide to leave or to withdraw. We also decided that it would be okay to do partial withdrawals. And of course, anyone could leave anytime they wanted.

If they asked to leave, it had to be a formal request. And then the prices that we would use would be at the day of the previous meeting before their request, or it might've been the end of the month or something. But it's very standardized and it's in our partnership agreement.

I was putting in that 100 a month for six years. Then I started doing some bigger contributions just because I thought, well, it looked like it was doing well why not try and put more money away? So I, some months I put in 300, 400, 500.

And then in December of 2015, of course, which is about six years after I started doing these other contributions, I decided to withdraw $25,000. Now, I don't actually remember why I withdrew that money at that time, but I needed it for something and I didn't want to have to borrow the money somewhere. And I think I didn't want to borrow the money from my IRA and then have to pay that back and that would affect my IRA long-term.

I withdrew $25,000, but I had more in there than most of the other members because I was putting more in every month. And then kept contributing various amounts, usually no less than a hundred a month. And then on, in August of 21, 2021, I withdrew $100,000.

Now I know what I did that for. I drew out $100,000 so I can make a down payment on a winter home in Scottsdale, Arizona. I didn't have 100,000 in cash sitting around, everything was invested in the club or in my IRA or in my 457B or whatever.

And so that made it nice. And there's some mechanics to doing that because you have to decide whether to cash someone out in cash or in stock or in a combination of both. Anyway, it went without a hitch and we bought the house, my wife and I.

Now, today, my current value in the club is $230,000. Now, the interesting thing about that is that my total contributions to date are $71,600. But when you look up on the software, what my contributions have been, it's negative $51,000 because the $100,000 that I've taken out has covered all of my contributions and then also on top of that.

If you take the 125, all the contributions I've made of $71,000, the $125,000 is basically wiped that out. And then there's actually a deficit in terms of what I've actually put into the club. And so if you were to add back my withdrawals to what's there now, the $230,000, I've benefited basically 355,000 as of today.

That's what would be there most likely if I hadn't removed the other $125,000. So most of the members have not taken any withdrawals if they've been in the club from the beginning. And the ones have been sticking with the $100 a month. And so they've not put in any extra. Currently, their accounts are running around $300,000. So I've kind of made it back up by putting in those larger amounts.

And my account's at $230,000 but some of them have over $300,000 because they never touched it. So again, I wanted to mention that most clubs do not beat the market averages, but I think we've done well with ours. And if I think about why that is, I would say that here are the reasons that I think that this has been working pretty well.

And getting back to how this relates to your life, again, you're not going to make a million dollars. This isn't going to pay you anything in the short term. So it's not an income diversification plan, but it is an asset diversification plan.

If you were to start one and put in $200 a month or $300 a month, you could easily have close to a million dollars in there after 30 years. Well, that means this is best for someone who's early in their career as a physician. And to put a few hundred aside a month, I mean, that's not like putting aside $100,000 or $200,000 to invest in a large real estate deal or something like that.

This works best if you do it early. And if you follow certain rules, I think, I mean, I can't necessarily prove it, but I think the reason that we've done fairly well and beat the market is because we do the following. Basically, we only consider buying a stock whose annual revenues and earnings both have grown at 10% or more for five to 10 years and are expected to continue to grow at that pace.

You can look up the historical easily enough. You can use some other estimates of experts. You can get it off S&P for free. You can do the value line thing, and they will tell you what's expected for the next five to 10 years. And then you basically use the SSG to analyze it. The SSG or stock selection guide tells you the zoning of where it falls.

What happens is you want to buy those with growth rates that are double digit and expected growth rates of double digits of some sort, 10, at least 10%, 12, 13, 15, and only buy if the current P-E ratio is lower than usual, historical, and or you can say lower than 1.0 on the P-E ratio. The value line will say, what's the relative P-E to others in this industry? And if the P-E ratio to that P-E is under 1.0, it means it's undervalued. So that's another way to go.

But basically, if you review the P-E for the last 10 years and the current P-E is running less than that in spite of the earnings and revenues expectations being equal or better, then that is considered undervalued and might be an opportunity to buy it. So you want to use those tools available to help you analyze these things, find out if they're in the buy zone, and then talk to your other members and say, hey, this might be worth buying.

I like to say when you get to a club that's mature, like the one I'm in now, I really don't like dabbling. I mean, there's no point in buying 100 shares of a $20 stock when that's going to end up giving you a half a percent or 1%. If you identify a stock that you expect to do well, chances are it's going to do better than some of the ones you bought five or six years ago because you're not usually going to sell those unless there's a good reason to sell.

And the fact that it's no longer got a low P-E is not a good reason to sell necessarily. So use the tools, do the SSG, talk with your co-members, and then buy an amount of the stock which is significant for that club, and I would say something that would be three to 5%. And then keep up on it.

People should be presenting every month, following up on their particular stocks. Everybody should be following two or three or four stocks of their own, and then sell the stock when the updated analysis demonstrates it no longer meets those criteria. And then you do the SSG, and the SSG, you plug all those numbers in, and you might see that it actually falls into the upper end of the hold zone, or it might be actually in the sell zone.

And most of the time you're not going to sell unless you have something else to buy. So that when it looks like it's ready for sale, and someone else has presented a stock that looks like it's ready to be bought, then you pull the trigger, and you sell the old one, you buy the new one. And by doing that over and over again, you tend to increase the odds.

It's not 100% by any means, but you increase the odds of doing well and having a good performance. I want to just say that as a result of my participation in my club, I've been very happy to continue to participate. I'm still doing the minutes every month.

I'm still bringing SSGs every month and looking for opportunities. I think I got a huge education in evaluating individual stocks, reading financial statements, understanding what drives the stock market, how to place orders, the benefits of cost, dollar cost averaging, et cetera, et cetera which helped with decision-making ability in my retirement accounts and my non-retirement investments because I have cash now and other investments, and if I want to buy stocks. Honestly, most of my investments for my retirement accounts are in mutual funds. And because I consider individual stocks to be a little more volatile and takes a lot more work to follow.

But over the years, I have invested in stocks in my other portfolios, and they have been helpful to preparing for retirement. I'm happy with the fact that the funds in the club have outperformed the market. So that's good.

That's a direct benefit. I've made several long-term friendships these people I've known for over 30 years. And every month we have fun and intellectually stimulating conversations with other members and like I say, one member is an attorney, so it's interesting to have his perspective. One's an accountant. It's interesting to see how conservative he can be. And everybody else has their interests.

One of the most interesting members right now is a younger member who joined us about two years ago, and he's like two years, he was still in his fellowship when he joined us. And he has some of the best ideas because he's up to date on what's going on with AI and the technology and so forth. So I think it's worthwhile doing.

And with that, I'll close. And I really encourage you to contact me with any questions that you might have about this. Just email me at john.jurica.md@gmail.com.