Starting and running a profitable investment club

What this book actually teaches

Thomas O'Hara and Kenneth Janke's book is the canonical guide to the NAIC (National Association of Investors Corporation, now known as BetterInvesting) approach to investment clubs — groups of individual investors who pool small regular contributions, make collective investment decisions, and build long-term equity portfolios using a disciplined fundamental analysis methodology. O'Hara, as the long-serving president of NAIC, shaped this methodology over decades and the book reflects that accumulated institutional knowledge. The central argument is that regular people, using a straightforward but disciplined approach to stock evaluation, can match or exceed professional investors over time.

The book covers two parallel tracks: the operational mechanics of running a club (legal structure, bylaws, record keeping, meeting procedures, valuation of club units, member contributions and withdrawals) and the investment methodology NAIC developed for stock selection. The methodology centers on four primary analytical tools: the Stock Selection Guide (SSG), which asks investors to plot a company's earnings and sales growth, evaluate management quality, and assess whether the current price offers adequate potential return; the Stock Comparison Guide for choosing between similar companies; the Portfolio Management Guide for monitoring holdings; and the Bond/Stock Comparison Guide for asset allocation decisions.

The SSG framework, which is the book's most enduring contribution, trains investors to evaluate five-year earnings growth trends, project future earnings based on historical patterns, and compare projected stock price to current price to determine if sufficient upside exists. It deliberately avoids complexity — O'Hara's view is that consistent application of simple tools beats occasional use of sophisticated ones. The emphasis on long-term holding, regular contributions regardless of market conditions, and diversification across fifteen to twenty stocks reflects NAIC research on what club portfolios that outperformed the market actually did.

The weaknesses reflect the book's age (1998) and origin. The record-keeping and accounting sections assume paper-based administration and pre-internet brokerage; every practical operational detail requires updating against current club software (BetterInvesting's own tools, or alternatives) and modern brokerage options. The SSG's reliance on historical earnings extrapolation has also drawn criticism — it works better for stable, established businesses than for high-growth or cyclically volatile companies, and it can generate false confidence when applied to companies with erratic or manipulated earnings histories.

For anyone starting a new investment club or trying to impose structure on an existing one, this book provides the most developed institutional framework available. The investment methodology is dated in its tooling but sound in its principles: focus on earnings growth, evaluate management, buy at reasonable prices, hold for the long term.

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About Thomas E O Hara

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