club_cafe: Investment limit question Bob,
While the 20% rule makes a lot of sense, your situation is one where it does not. When you only have 6 members, it can be very difficult to keep everyone below 20%. If one of your members withdraws, it will be impossible (unless the remaining 5 just happen to all be equal members). One possible alternative might be to rewrite your limit so that it says that no member can own more than twice (1.75x, 1.5x, etc.) the percentage of the club that s/he represents to the number of members. In a club of 10 members that would be equal to 20%. In a club of 6 members, it would equal 33%.
Ira Smilovitz
In a message dated 12/26/02 11:29:06 AM Eastern Standard Time, caracarn@bivio.com writes:
We are hitting an issue in our club that I'm not sure how to
address and would like some input. We started our club 2
years ago with 10 members. Through attrition due to lack of
interest and the lagging economy, even with new members, our
club is now down to only 6. Our original documents include
the standard clause of limiting any individual member to no
more than 20% of the total club portfolio. This month we
have two of our 6 members that are at or slightly above that
limit.
My question is, should we stick hard and fast to this rule?
Why is this rule been used by many investment clubs? I
think I've heard the arguement that if one member gets to
heavy (35%+) they begin to dominate the club feeling that
they should have more of a say and even though it is one
member one vote, other people can begin to sympathize with
them and it can sway their vote, so to keep that from
happening, that's why the 20% rule came about. With out
current membership I don't really see that happening, so I
personally would be OK if some members exceeded that amount.
As teasurer I need to bring this fact up at the next meeting
and I know that the discussion with them move to the need
for this limit and I wanted some educated input from other
clubs as to why we should or should not hold fast to this
limit.
Thanks.
Bob Smyk
Treasurer
INsecurities Investment Club
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