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Pages from the Past - Playing for Keeps

by George A. Nicholson, Jr., C.F.A., Co-Founder of NAIC's BetterInvesting

This call for patience came in August, 1972, after 6 1/2 years of no new market highs. It would be another 10 years before a sustainable advance would begin to take place. Note the important role patience can play in building wealth.

There have always been three main reasons for belonging to an Investment Club. The first is SOCIABILITY. The second is EDUCATION. And the third is PLAYING FOR KEEPS in the money-making game.

This third reason -- PLAYING FOR KEEPS -- is the predominate reason at this time. Stock prices have not made a new "high," as measured by the Dow Jones Industrials, since February, 1966. Measured by the Value Line Industrials the market high was reached at the end of 1968. The intervening years have been hard on the patience of investors.

Yet, if one looks at the history of the Mutual Investment Club of Detroit, it is evident that PLAYING FOR KEEPS was the dominant motivating factor over the years for belonging to that investment club. Sociability, of course, increased and education also improved.

The table below shows that there was a six-year interlude between 1946, when assets were at $15,000, and 1952 when $30,000 was first reached. It is well to note assets doubled again to over $60,000 by 1955.

Click to enlarge.

If this club had not been patient, the results attained in future years would not have been forthcoming.

If this club had not been PLAYING FOR KEEPS it would not have loaded its portfolio each time with companies that might show substantial price appreciation, WHEN THE NEXT BIG UPTURN CAME. [The next one would come 10 years later.] Each time the base was bigger -- $15,000, $30,000, $60,000, $120,000, $240,000, $500,000.

The inflations of World Wars I and II were both followed by long periods of prosperity and substantial stock market gains. It appears to me that the Cold War inflation, which probably reached its peak in 1968 through 1970, will be followed by somewhat similar economic and stock market behavior. Therefore, the major question, in my opinion, is not whether the present bull market is "aging" but whether it is in fact just the beginning of a long advance. Starting the second club for the Post-Cold War Bull Market should help provide good investment ideas for your original club.

Editor's note: Continued investment by the members through the 16-year period when the market was not able to sustain new highs (1966-1982) paved the way for significant growth when "the next big upturn" finally came in August 1982. By 1986 the portfolio topped $1 million.

George Nicholson, Jr. CFA, is considered by many the grandfather of the modern investment club movement. He was a co-founder of NAIC's BetterInvesting and served as Chairman of the World Federation of Investment Clubs. He was also a vice president with Smith, Hague & Co.