Challenge Club (January 2013)

Challenge Club

We’ll hold the January 2013 (online) session of the Challenge Club on Thursday, January 17 at 8:30 PM ET.

Think of it as an open house — guests welcome to lurk, browse and participate as we make decisions intended to improve the model portfolio.


The Challenge Club is an investment club emulation — launched back in 1999. The central theme is (1) the maintenance of a model portfolio and (2) sharing of ideas in a learning environment. The tools and resources deployed are based on the lessons and methods of the modern investment club movement.

Since 1999, the annualized total return is 6.5%. Since the Wilshire 5000 (Total Stock Market, VTSMX) has gained 3.3%/year over the same time frame — the Challenge Club has a annualized relative return of +3.2% (i.e. an “alpha” of 320 basis pts).

During 2012, the internal rate of return for the portfolio was 14.3% for a relative return of +1.4%.

Portfolio Discussion and Analysis

The following images provide an overview of the holdings, current dashboard and diversification graphics.

  • Overall Portfolio Return Forecast: 12.7% vs. 7.7% for market median — will get a boost when cash position is deployed.
  • Overall Quality: Check. (81.6) Maintain relatively high levels of quality and financial strength (90% = A+) when the median return forecast is below long-term averages.
  • Overall Growth Forecast: Check. 11.0% — the target range is 11-13%, so a blend of faster-growing companies should receive some emphasis while shopping for either accumulation candidates or screening for new additions to the portfolio.
  • Sector Diversification: Solid.

One Big Picture

As 2011 came to a disappointing close, we shared an image from that featured a group of people huddled and looking out over a vista.

As 2012 comes to an encouraging and successful close — continuing to reinforce a solid long-term track record, our advice is the same. Seek refuge from the noise and chaos. Focus on what’s important — the patience and discipline encouraged by the founders of the modern investment club movement. Carefully consider growth, profitability and valuation during diligent studies and continuous vigilance. Challenge assumptions. (Most participants are probably happy with our partial sale of Apple last month, “20% ago”, even if you voted against it.)

No one promised you a straight line from “A” to “B”. If they did, they should occupy the cell next to Bernie Madoff. No, the road ahead will have curves, inclines and troughs … and yes, a few weeds along the way.

But reaching that crest to enjoy a good sunset with a bunch of friends is really what long-term investing can be all about.

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