On Recession Investing and Investment Clubs

by Albert W. Thomas

First of all what is a recession? There does not seem to be unanimous agreement as to what it is. Many say it is the shrinking of the economy for 2 consecutive quarters. Shrinking or diminishing meaning smaller GDP, Gross Domestic Product, meaning less services and goods produced by industry and more unemployment, but the six members of the National Bureau of Economic Research look at things on a month by month basis. Hey, what do they know? They are economists. But they are professors of Harvard and Yale and other prestigious universities and everyone thinks they know what they are doing. (You can order the report from the NBER by calling 617-868-3900.)

Personally, I am not a great fan of economists. If you’ve ever look at their econometric formulas you will immediately know what I mean. They use all those Greek letters to symbolize something that is happening in the country such as the increase in the ergs of electricity in south central Utah compounded by the number of pounds of bacon consumed by people under age 15 divided by the square root of pie, pye. (How do you spell that Greek symbol?) You know I am joking, but when their predictions don’t work they will tell you that one of the parts of the complex formula doesn’t seem to be running true. Don’t ask them what is the price of a quart of milk or a loaf of bread.

During this past year you and I know that more than 1,000,000 people have been laid off. And that is the official version from Washington. They don’t keep track of those who no longer are getting overtime or have had their hours cut from 40 to 30. And what about those who have home-based businesses that are not able to get enough work to make ends meet? They are not counted at all.

I don’t think we need a bunch of Ivory Tower mavens or talking heads on TV and radio to figure out that the economy has slowed. What good does it do anyway? When times get tough you have to figure out what is best for you and one thing you do know is that some brain in Washington is not going to be your answer.

Washington wants you to spend more money. Travel. Movies. Eat out more. Buy stuff. But does that make sense when you are not sure you will have a job next week? Does it make it any more palatable to know it is a recession? Not really.

Forget the headlines. Do the best you can with what you’ve got. Help your friends and neighbors. Be the best employee your boss has and help your company to be competitive because unless you do they might go out of business. During rough times it is quality that counts. And you have the quality.

INVESTMENT CLUBS

Because you don’t feel too sure about which stock or mutual fund to buy you decide to become a member of an investment club. Each of the members contribute a certain amount of money each month and then meet to decide what to buy or sell.

It is a nice camaraderie, but what do you know about making money in the stock market? The members decide what services to buy to obtain information on stocks and funds. Certain members will be designated to do research on a particular stock and bring it to the next meeting.

The members become buried in gathering data – doing research and forget that the end result is to make money. It is relatively rare to do any technical analysis. They gather reports from so-called investment analysts at the big brokerage firms. Recently the Securities and Exchange Commission has been investigating the recommendations of their in-house analysts because of the very poor results of their calls. Some have been accused of giving buy recommendations on stocks it was obvious were dogs. Let’s hope the SEC does something besides a slap on the wrist.

We used to have a guy where I was a broker who wrote reports. He was told to do a report with charts and graphs. He said, “OK, do you want it to be bullish or bearish?” He could slant it any way we told him using the same facts and statistics and never tell a lie. The small investor is at the mercy of these people.

One of the greatest sources of information is Morningstar. They have every bit of information that is available about a company and they will sell it to you at a reasonable price. My problem with all this information is there is one important thing they cannot tell you - if I buy it, will it go up?

After more than 30 years in the business I will tell you that all the information you can gather about any company or mutual fund is totally and completely worthless. Trying to pick a winning stock is very difficult so what I do is let a very smart guy do it for me and he does it at no charge. How? Simple. I hire the manager of a no-load mutual fund that is currently going up and I buy that. As long as his fund is advancing in price I will keep it and as soon as it starts down I sell it and find a new smart fund manager who can make money for me.

There is no such thing as a “good” mutual fund. At times they are good and at times they are bad. Good is going up. Bad is going down. If a fund has been advancing for more than 60 or 90 days at the rate of more than 2% per month it will show up on my Buy list. I don’t need to know anything else about it and no further research is necessary.

Show this to your investment club members. A chart is helpful, but the numbers will speak for themselves. The only research your club needs to do is find a no-load mutual fund that is advancing the most in the last 90 days. Forget about 3-year and 5-year performance. What has it done lately? Your club can be a winner every year.