Dawns of Awakening Redux

Cover Story, by Mark Robertson, Managing Partner March 1st, 2015

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Dawn begins with the first sight of lightness in the morning, and continues until the Sun breaks the horizon. "Dawn" derives from the Old English verb dagian, "to become day". It is a time for discovery, awakening and preparing for challenges and opportunities and sharing the lessons of nearly eight decades of "Investing Better. Together."

Several years into what has proved to be something of a secular bull market, we find that many investors around us are sad. Confused. Frustrated. Seventy years of experience suggest that we continue to focus on all that is important and what works. This month, Ken Kavula kicks off coverage of a new, simple and potentially powerful resource, ALERTS at Manifest Investing. Kurt is creating. Again. As this resource evolves, we’ll see demonstrations of timely nudges based on and entirely focused on the things we know are most important — and quite simply, are not available anywhere else in the world of investing. We’re here for the returns, superior performance and the vigilance of a like-minded community.

“What’s the best thing for being sad?” — Young King Arthur
“The best thing for being sad is to learn something.” — Merlin

Anecdotal evidence.

There’s nothing wrong with seeking validation of our methods. Members of the national media and certain Rhinos have long assailed the results of investment clubs and questioned performance. When I was Senior Contributing Editor for Better Investing, I was responsible for the annual survey of performance for several years. Was the sample “scientific?” We never pretended that it was. Was it possible that only the best-performing clubs submitted their portfolios and accounting statements? Perhaps.

But does it really matter? Why? Because we saw indications of something special … something superior.

March 27, 1992. Friday morning. Dawn. My morning routine included stop at the local convenience store to grab a cup of coffee and an early (very early) arrival at the office. Why? Because my manager had a subscription to the Wall Street Journal — and if I got there early enough — I’d spend a few moments with this publication. The mission every morning was to be early enough to consume it and to restore the Journal to “mint condition” and put it back in the entry way (or on his desk.)

On this particular Friday morning, an article captured my attention and I “borrowed” his WSJ for more exploration and discovery.

Investment Clubs Beat The Pros By Sticking To A Simple Strategy

So proclaimed the headline above the words provided by Earl C. Gottschalk, Jr. Mr. Gottschalk chronicled the achievements of these “investment clubs” highlighting their tendency to invest in companies like Wal-Mart, Merck and McDonald’s.

I had never heard of investment clubs. I was intrigued.

Earl went on to share some evidence. The most widely-held stocks by these investment clubs had a “sizzling total return” of 57.6% for 1991. The S&P 500 had gained 30.6% over the same time frame and the average diversified equity mutual fund had gained 36.2%.

I had never heard of investment clubs. But I had heard of Michael Metz, chief investment strategist for Oppenheimer. What was Metz’s anecdotal take on this? “Sensational.”

I devoured the article. More than once. My manager’s Journal failed to make it back to the entry way for the first time ever. Earl presented a great case, even if he fell victim to “bad sampling” and probably focused on the achievements of a single year.

Somebody else I’d never heard of, Ralph Seger, shared his observation that club partners “emphasize quality growth stocks.” A money management consultant in San Diego observed that club partners are “very tactile and use common sense. They translate the world around them into investment opportunities.”

The ‘Children’ Shall Lead Us

Within a couple of months, we had formed a family and friends investment club. I can still vividly recall the early days — reaching to understand this elegantly simple approach to investing. Merrill Lynch’s top strategist reminded us that “buying quality growth companies with consistent growth records isn’t a bad strategy at any time of the business cycle. Ken Janke, president of NAIC, reinforced these thoughts at every turn. “When is the best time to invest?” “Now.”

Find good companies at good prices. Own them.

We explored. We experimented. We sold DELL at a 30% gain and watched it soar a few thousand percent after we sold it. We invested in a couple of mutual funds and Bogled a bit. I was relegated to starting a few club meetings from under the coffee table because I recommended that we sell Intel and buy a promising Canadian battery technology company that had just hired Michael Jordan to run some ads. We learned what happens to shareholders when the audit firm includes a footnote in the annual report that went something like this: “We don’t know for sure but we’re not sure this company is even going to be able to pay us for these services.” OK, that was slightly paraphrased. But we learned that footnotes come with a kick. Our club matured and our understanding of the method deepened. Computerized tools were a tremendous resource for dealing with the challenge.

We discovered companies like Cisco Systems and Oracle on the pages of an obscure publication: Hoover’s Handbook of Emerging Companies. Like most club-based adventures, 14-of-15 of us started our own brokerage accounts. Some used lessons learned in individual retirement accounts. Let that sink in a little. Some of us held companies like Cisco Systems and Oracle in personal accounts for most of the 1990s.

And we thrived. Our performance was among the best.

Fast forward a decade or so. I continue to find considerable excitement and promise in the results of our collective efforts. Tin Cup is rocking as we now think about a future dawn when this demonstration portfolio (retirement account simulation) will reach $2,000,000. The Solomon Select features continue to outperform the market. The Bare Naked Million portfolio continues to demonstrate that investors can be relatively inactive and yet still be successful. We’ll cover the performance of the MANIFEST 40 next month. Suffice to say that the performance of your 40 most widely-followed stocks is worthy of excitement and respect for a certain tradition of investing.

As I sat at my desk, approximately ten years after reading Gottschalk’s article, I was honored and privileged to be surrounded by stacks of portfolio reports — the partnerships that had responded to our 2000 survey.

The average rate of return for the 897 clubs that responded was 41.3% for the 12 months ended 3/31/2000. The Wilshire 5000 advanced 24% over that same period.

Discovery Deployed

Those piles of portfolios and performance contained many lessons and best practices.

Manifest Investing was borne on the wings of the things we observed, the methods that served legions of investors well for multiple decades. Our interpretation includes an emphasis on building return forecasts, gauging quality and embracing growth.

We look forward to future Saturday mornings and open keyboards and microphones, continued Round Tables, our development of Thrift Savings Plan resources and things like an alerts infrastructure that can only be found here, with us. Sad? Not. Even. Close.

It’s a promising vista at dawn.