Commentary: Educated Investor - Recognize your limitations

Recently, I attended a monthly directors meeting of an association I belong to.

During the meeting there was a brief discussion concerning the failure of Gov. Ehrlich's slots bill, which would have benefited not only the horse racing industry here in the state of Maryland, but helped improve our educational system with the extra funding.

A lawyer in the group gave an update on the latest gossip heard in Annapolis on the future of slots.

The lawyer said that some elected officials were pushing for five slot machine locations instead of the three that the governor's bill had called for. He claimed that two tracks would probably be awarded slots as well as three tourist destination spots based on competitive bidding.

Then the lawyer made a statement to the effect that five casino locations wouldn't generate any more total revenue than three casinos. It would just reduce the amount gambled at each site.

If that statement were true, McDonalds and Subway wouldn't locate restaurants just a couple of miles apart.

What the lawyer fails to understand is that all businesses have saturation levels. In other words, how many McDonalds, as an example, can a geographical location support.

I doubt if five casinos for the entire state of Maryland is a saturation point much less the proposed three locations that the governor wanted. I just point to Atlantic City as a prime example. If the lawyer is correct in his statement, then how can the 11 casinos in Atlantic City which are crammed in such a small geographical area survive?

Now this attorney is a good lawyer and is associated with a fine law firm, and they do great legal work. But if he really believes his comment to be true, then one has to question his business acumen, and I don't believe the questioning to be unfair.

After all, you can't expect everyone to be an expert in all areas. That would be an unreasonable demand, but we must recognize our limitations, and seek help when needed.

Now, how does the above scenario relate to investing?

Well, as I have said many times before in this column, be objective when it comes to investing your hard-earned dollars. Don't get caught up in enthusiasm and greed or you will lose in the end.

Don't be like the lawyer that went beyond his expertise. In the above case, if you do not understand business saturation get help from someone that does. If you are researching a technology company that is offering some state-of-the-art software, seek out a software specialist and run the idea by him or her.

If you are looking at a medical company seek a physicians input. Talk to their competitors. Do some legwork. The main point is to recognize your own limitations and recognize when it is necessary to seek outside advice. No one can be a jack of all trades with any degree of expertise.

Food for thought: With the market in a trading range for the past seven or eight months, and the uncertainty of the Iraqi War over with, it might be an idea time to start stepping back into the market on a dollar cost averaging basis.

In order to add some social fun to your investing you might consider setting up an investment club. A club where 10 to 15 individuals pool their monies together and invest as a group. In the beginning maybe the group could meet once a month and then less often as the situation dictates.

Using my above scenario where the lobbyist is a good lawyer, but his business skills might be lacking, have a diverse group of individuals that all have something to contribute.

Try to have an accountant as a key member so he or she can review the financials of the companies you are researching. Some other likely members could include a lawyer, doctor, technology-oriented person, or perhaps a CEO.

Or if you want to specialize your investing in medical companies for example, form a group of doctors with various specialties and expertise's who could all add to an intelligent decision making process.

Make sure you include an investment advisor either as a member or consultant since they can provide you with much-needed research as well as the best way to execute your orders.

In order to get started all you need to do is get a partnership agreement developed and signed (if you call me I can provide you with a sample). Then create an investment plan, select your members, open a trading account, and start the stock selection process.

With a decent stock market, you will not only make money, but you will have fun and probably meet a few new people along the way.

David R. Clogg, ChFC is an account executive at Chapin, Davis. He can be reached at 410-435-3200 or visit his Web site at www.theeducatedinvestor.info.

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