⚠️ This post only applies for members of the original investment club – a small group of friends who invest together. For those who follow my investment newsletter please read the starting guide in English and in Romanian.
Why?
In the past few years I’ve been an investor in stocks. I saw some investments grow and others fall despite my enthusiasm about them.
In the meantime in order to educate myself I read some great books which I full-heartedly recommend – The Intelligent investor by Benjamin Graham & Essays by Warren buffet – which taught me the fundamentals of stocks and how they produce immense value for shareholders but also how they are deceiving.
The authors of these books, Graham and W. Buffet themselves created billions of dollars of value on the stock market. I believe we can too create pretty great fortunes – but not to the tune of billions, maybe millions.
How?
The bible of the value investor – Written by Ben Graham simply states: Buy stocks of profitable companies when their stocks are cheap and hold them for a long time as the stocks grow. Generally speaking profitable, healthy companies produce 10% annual returns which means by holding stocks in a good company you can double your investment in 7 years.
Warren Buffet was the student of Ben Graham, and using value investing principles he built his first joint fund with friends of 100.000 USD in the 60’s and made most participants to that fund millionaires by the 70’s by averaging 24% annual returns. His results are highly unusual and even he could never repeat his performance. Today Buffet runs Berkshire Hathaway (a company in which anyone can buy stocks) which produces 19% per year – meaning he doubles investors’ money every 4 years. Still pretty great if you’re looking to invest money.
Warren has a lot of lessons to teach us particularly about patience and discipline and what kind of investors we should be. More on this later.
What are stocks?
Generally speaking and we’re simplifying a lot , owning one single stock of a company means you own a part of it. Depending on how many shares a company printed, your ownership percentage varies and you can even become it’s full owner of it if you own more that 50% of its voting stock (barring companies where the Founders create non-controlling stock). The stock is traded on the stock exchange (New York Stock Exchange or Nasdaq for example) and anyone can buy and sell stocks in a company any time the stock exchange is open at the price you want to buy or sell it – you do so online using a browser and a bank account.
Because stocks are bought and sold multiple times a day they vary wildly in price during a single day or week or even year. For example Apple (stock symbol APPL) varied like this in the year of 2018:
Apple’s stock has started the year at 174$ a share, went through a correction in February – that was about the time a value investor would have bought the stock, then grew to 234$ per share in August when everyone was excited about the company hitting 1Trillion $ in value, and then influenced by the overall market dropping and tech companies in particular – dropped back to 174$.
For a value investor, at 174$ APPL is a much better stock to buy than it was at 234$ as it is a 25% discount. Value investors love discounts. Provided Apple continues making as much money as it does, investing in it at the right price might be a great idea.
Warren Buffet himself recognized APPL and he holds about 10% of Apple in his portfolio, but he started buying the stock a long time ago at an average price of 109$ per share.
What is our proof that we can do this?
Following the value investing approach I took a stock of a company I follow and started buying it. Once I understood the buy low and hold strategy I was quickly able to make 20% profits on an 8000$ investment in the first 3 months. The company I was following had a low moment due to bad press but it was fundamentally strong. Once it reported quarterly earnings – everyone understood that and the stock grew. We won’t always be able to find such deals and will have to satisfy ourselves with smaller returns.
Of course this stock, and any stock can still drop. But if a company is healthy enough and you don’t need to take the money out of the stock over the long term it will grow. I expect my 8000$ investment to ultimately multiply many times. I want your investments to do the same.
How does this investment club work?
Simple: Each one of you will create a stocks trading account in his country, deposit an amount on it that you want to invest and I will do the investing for you. If you begin interfering with the investments then this deal drops and your account will never be touched again by me. Aditionally you’re automatically removed from this club. We’re still friends, but it’s so easy to loose money on the stock market that it’s best to take a while and learn about the rules and practices of investing.
Is there a trick?
No. I will not win a single cent more than if I were to invest my own money alone. In fact this will be a serious part time job for me. But I have good reasons to believe I will be able to grow your & my money.
How do I know you will not run away with my money:
For peace of mind you will have my home address – in case you did not already. It’s very important that I speak and know each investor individually and understand his personality – so I’m able to help with fears you might have – but also to ensure our investors understand what we are doing here (value investing). We do not need many investors and will not be accepting investors that haven’t spoken to face to face. I want to create value like you would for your family – not risk getting hate mail from strangers that happen to have invested with the club.
What are the do’s and dont’s:
1. Do not invest money you will need in the next 6-12 months – if the stock market drops and you need the money we will be forced to sell your part at a loss and you will get back less than what you invested.
2. Do not use loaned money for this investment – Loans are bad for buying stocks because not only do stocks put pressure on you, having to pay someone back is even worse and it makes you more sensitive to market changes.
3. Investing here is done for the long term – Every 6 months you will be able to ask me to sell your part and return the money – or if you are in a medical situation or otherwise unforeseen situation you will be able to withdraw your investment at any time – provided you provide documents that prove it. – We do this to prevent panic selling – that is being scared of something you might have heard on the news and fearing losing all your money. WE will never risk too much and as such you will never loose too much of your investment even if the stock market drops.
Don’t try to interfere with the investments on a day to day basis. Trust that I will do a good job – without proper preparation on the stock market it’s easy to fall into the trap of selling when stocks are low due to panic heard on the news and buying when they are high due to enthusiasm. This is a guaranteed way of losing money.
Do read the books we spoke about here. They’re the cornerstone of investing.
You own your investment account and can look at it any time you’d like – be it that we’ve made money or lost some. Every month we will publish a report for all investors to see – how our investments are doing. We will not be doing this daily – as daily fluctuations can be large and we really don’t care that much. Even monthly fluctuations are not representative as we’ve seen with APPL stock – but for our small and humble beginnings monthly reporting will be enough and a good time to discuss.
Do follow the stock market and how it is doing.
Who will be part of this fund:
As with Warren Buffet’s original fund, our club will be one for friends and family only – as my goal is to create value for immediate friends with whom I can communicate clearly and efficiently. If I invite new investors aboard you will be informed although our club’s performance is not influenced by the number or size of investors. If you’ve invested 1000$ and your stocks earned 20% that year, you will now have 1200$ regardless of how much money everyone else put in their account and how their specific stock account has performed.
What do you think is the earliest time we could be looking at some real profits on our investments:
If we are lucky we could be making profits from the first month onwards. If we are very lucky our first year could bring up to 20%- my goal will be to buy stocks low enough that we never have to see losses for too long. Barring an economic recession I think we might achieve that.
What are the requirements:
1. That you invest only your own – free money in multipliers of 1 thousand Euros/$ so we can all speak the same currency.
2. That you hold the money for at least 6 months – with the exception of special cases described above
3. That you tune in to our monthly reports and ask objective questions.
4. That you dont interfere with the investment activity (buying/selling)
5. If deciding to leave – you will not be able to return for a minimum of 3 months to prevent unnecessary moves.
What stocks are we going to buy initially:
Since I own about 31 shares of TSLA stock that have grown a lot over time – TSLA is one of the companies we’re looking to buy stocks into. I also expect us to also buy stock in Warren Buffet’s Berkshire Hathaway as well( Stock symbol BRK-B) Other companies will certainly join this list and we will keep reserve cash for potential investment opportunities when they do show up. I will update you as necessary and our monthly reports will show exactly what stocks we hold.
Why was I chosen and can I make this information public?
Nothing here is secret and you can share this with anyone. However we won’t market this to a lot of people – This is a service I provide for free to my immediate friends and I don’t think I can make money from it.
You were chosen because I believe or know you’re looking for investment opportunities and this might be one of the best out there while retaining the possibility to withdraw cash at any time if you still need the money for something. As your friend I must warn you that at specific times your investment account might also decrease – but over the long term it will grow. Our friendship has nothing to do with the performance of our fund – and we will only speak about the fund during monthly calls – we don’t mix business and friendship. Casually asking how your investment is doing on a Saturday is a bad idea as this is an unhealthy friendship dynamic.
What’s the minimum investment?
In general 5000E is the minimum but exceptions will occasionally be made. Why 5000E ? Because most stocks we consider are selling at about 200-300$ per share so if you were to only invest 1000E it will force us to 3-4 shares only and that means a lot of buying costs every time we buy. We much prefer buying 20 stocks at a time.
What is the maximum investment?
For the start of our fund the maximum investment can’t be larger than 10.000E. I want to be able to sleep at night knowing that if your money goes missing by virtue of a hack of your bank account I can simply repay you back from my own savings.
What are the tax implications ?
Our club has no tax consequences. Instead just like you do now you will have to report your invested money in your investment account to your country’s tax authorities and tax your money there. If your country doesn’t tax money invested in the stock market – you don’t have to pay anything for your investment to the state. Please read up on this.
Why don’t we invest our money ourselves and you just give us advice on what to buy?
I considered this option , but like me and all other beginner investors you will probably lose money in the beginning by panic selling and hype buying. I lost as much as 5.000E in a single day before I read and understood how to invest in value and not gamble on the stock market. I lost some more after mastering the technique but not mastering my emotions and going against my own best judgment because of enthusiasm I had for a stock. I will not at all mind if you decide to pull your money out of the club after a gain or loss of 6 months. Each person has an absolute right to choose what to do with his hard earned dollars – and I don’t gain or loose anything when someone joins the club. Not joining the club is also a smart decision as you don’t risk at all – we are good friends regardless of your choice – in fact better friends probably if you do not invest.
Is your sole purpose to serve us? Sounds to good to be true and therefore I don’t believe it.
Mainly yes but this isn’t just to help you. I want to build a reputation for this club by growing your money to such a degree (I hope we do very well) that the reputation will work for us and we all become rich in the process. It can’t hurt having a couple wealthy friends. I want to dedicate the rest of my life to an investment career – as it is good to sit back relax on the couch and watch your money grow.
v 1.4 addition: Can I ever start investing myself instead of being supervised?
Yes, after a while all members of the club will invest on their own, no longer under supervision. For lack of a better name I call new joiners beginner members and I invest on their behalf. Once you have sufficient understanding and show a good understanding of value investing and the principles we use in the club, you can invest for yourself. Let’s call this an intermediate investor. The intermediate investor is still limited to invest in the companies approved collectively by the club but he has the freedom to choose how much money and when to invest . Another special privilege however that an intermediate investor has over a beginner is that he can add one extra company to his portfolio. It has to be a small part of his portfolio and ideally this should be a company the rest of the club will also eventually invest in.
Another special privilege of an intermediate investor is that he can slightly(a few percentage points) tune his allocation into Tesla Berkshire and Square.
v1.5 addition: After the intermediate step, can I take complete control over my account?
Yes, the last step is becoming an advanced investor with no obligations to invest in the same companies as the beginner or intermediate investors or even my recommendations. The core principles of our club remain that we use value investing and find great opportunities and do a lot of research to make intelligent decisions , however advanced investors are not required to follow any advice given in the club – and are free to leave the club and read the newsletter or remain in the club and get latest information with no obligations. They manage their own wealth, taxes and long term plans. This is the final goal for all original club members