Best Practices for Investment Club Portfolio Management

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Some tips on portfolio management for investment clubs.

Some tips on portfolio management for investment clubs.

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  • 1. Doug’s Portfolio Clinic Best Practices: Club Portfolio Management by Doug Gerlach ICLUBcentral Inc. April 2010 © Copyright 2006. ICLUBcentral Inc. Doug’s Rules for a Healthy Club Portfolio © Copyright 2006. ICLUBcentral Inc. Page 1
  • 2. Doug’s Portfolio Clinic Goals of Portfolio Management 1.Reduce 1. Reduce Risk 2.Increase 2. Increase Returns 1. Diversify by Sector & Industry • Spread out holdings into many industries – Beware focusing too heavily on retail, consumer goods, restaurants, healthcare • Avoid sector concentration Page 2
  • 3. Doug’s Portfolio Clinic 2. Diversify by Company Size 3. Don’t Own Too Many Stocks • Traditional rule: 10-12 stocks offer good 10- diversification • New research: 15-20 stocks provides 15- better benefits • In a club: own no more companies than members can follow effectively – Such as 1 per member Page 3
  • 4. Doug’s Portfolio Clinic 4. Don’t Fear Selling • Review stocks after each quarterly EPS announcement • Replace (not “sell”) stocks with limited upside potential or problematic concerns – Over-valued stocks are as a big a risk to your Over- portfolio as under-performing stocks under- • Upgrade your portfolio often! 5. Don’t Get Dragged Down by Fees • Commissions & costs should be less than 2% per purchase – and ideally closer to 1% – Otherwise, fees eat excessively into your returns • Larger investments also force you to concentrate your energy into finding absolute best candidates Page 4
  • 5. Doug’s Portfolio Clinic 6. Be Tax-Smart Tax- • In club, transfer highly-appreciated highly- shares to fully-withdrawing partners fully- – Delay recognition of embedded capital gains until each subsequent partner withdraws from club (could be years!) • Never forget tax impact of portfolio decisions – Just don’t be governed by them! 7. Portfolio Goals are Moving Targets • There is no such thing as a “perfect” portfolio. • Your club portfolio is always changing, always requiring adjustments. • Consider these as “guidelines,” not hard and fast “rules.” • But beware of consequences if you break the rules! Page 5
  • 6. Doug’s Portfolio Clinic For More Information • ICLUBcentral www.iclub.com • Write me gerlach@iclub.com 12 Page 6