A friend of mine recently approached me about starting an investment club. These groups have become popular over the past few years as markets have rallied. The general idea of an investment club is to get a group of investors together to share ideas and resources, ultimately creating a group portfolio. This isn’t the first time someone has asked me to be involved in such a venture. Most of the time I find that people aren’t prepared to do the work and high-level analysis that is required. They simply want to buy Apple because they think the company will sell a lot of iPhones. While I don’t participate in these groups, I often offer research exercises so members can get a different perspective of their process. The goal is to help them uncover potential behavioral biases that may exist in their process, or in some cases their lack of process. One of my favorite exercises is to ask the group to choose a small cap stock that they have never heard of before, research everything they can about the company, then make a buy/sell recommendation. I also put in a twist...they must do all of this without looking at any charts or price information. The purpose of this exercise isn’t to teach someone to create discounted cash flow models. It is to help them understand how much price movements can affect our interpretation of data.