Unit Value question and what it represents

Mike Taylor on

Hi all,
I'm the treasurer of my club and I am used to fielding
questions on Unit Value. But yesterday one came up and I
couldn't answer it.

Our club started at $10 and current unit value is $26. So
I proudly said that we'd more than doubled our money. I
showed the relationship between the number of units * unit
value = market value.

Then someone showed me the member's contributions report,
showing all $$ contributed, and it showed that member's
contributions vs market value was nowhere near 2.6 times.

I resolved I'd report back to the club to explain Can anyone
help?

figures are below:

# units = 3,164.335556
market value = 75,097.93
unit value = 23.73
total member contributions = 64,144.00

So shouldn't the unit value be 75097.93 / 64144 = 1.17 * 10
= 11.7?

cheers

Mike

Jeff Williams on

I can take a stab at how you could explain this with an example.

Say on day one, ten initial members bought ten shares each at ten dollars.
This is a total f $1000 at a unit value of $10. The partnership now buys
$1000 worth of stock that goes up to $2600 quickly. The unit value is now
$26. Now, if the value never changes, and members continue to put in
hundreds of dollars at $26 per unit, you can see how the partners unit value
is always $26, but over time the ROI goes down.

The only real way to evaluate the return is to do an IRR analysis such as
bivio supplies in the reports.

Jeff

-----Original Message-----
From: club_cafe@bivio.com [mailto:club_cafe@bivio.com] On Behalf Of Mike
Taylor
Sent: Sunday, November 15, 2009 6:00 PM
To: club_cafe@bivio.com
Subject: club_cafe: Unit Value question and what it represents

Hi all,
I'm the treasurer of my club and I am used to fielding
questions on Unit Value. But yesterday one came up and I
couldn't answer it.

Our club started at $10 and current unit value is $26. So
I proudly said that we'd more than doubled our money. I
showed the relationship between the number of units * unit
value = market value.

Then someone showed me the member's contributions report,
showing all $$ contributed, and it showed that member's
contributions vs market value was nowhere near 2.6 times.

I resolved I'd report back to the club to explain Can anyone
help?

figures are below:

# units = 3,164.335556
market value = 75,097.93
unit value = 23.73
total member contributions = 64,144.00

So shouldn't the unit value be 75097.93 / 64144 = 1.17 * 10
= 11.7?

cheers

Mike

Rip West on

Hi Mike,

The short answer is that you can not measure performance by looking at the changes in unit value. My old cohort on tres-talk, Jerry Dressel, used to give this example to prove the point.

It is easy to prove that unit value by itself is not an accurate guide to overall performance. Take a example of a club member who invests a $100 in a club on 1/1/00 at a unit value of $10. Then on 2/1/00 that same member invests another $100 at a unit value of $20. Therefore, this member bought 10 + 5 = 15 units for a total of $200. Then on 3/1/00 the unit value is $12. Since 1/1/00, when the club began, the unit value has increased from $10 to $12. During that same period this member invested $200. Unfortunately, even though the unit value has gone up 20% in the first 2 months, this member lost $20.

You can measure performance, with the internal rate of return calculations, provided in bivio reports.

Rip West
Saint Paul, MN

Jim Thomas on

Mike,

You've discovered that unit value is not a reliable measure of club
performance.

To add to what Jeff said ...

> Our club started at $10 and current unit value is $26.
> So I proudly said that we'd more than doubled our money.

That's only true if all club units had been purchased at $10 each. In fact,
your members purchased units at a variety of prices over time.

> # units = 3,164.335556
> market value = 75,097.93
> unit value = 23.73
> total member contributions = 64,144.00
>
> So shouldn't the unit value be
> 75097.93 / 64144 = 1.17 * 10 = 11.7?

No, that would reverse cause and effect. Market value drives unit value,
not the other way around.

MarketValue / #Units = UnitValue

75097.63 / 3,164.335556 = 23.73

You might find it helpful to read the section on Unit Value (page 2) at
http://www.bivio.com/pugetsoundbi/files/ClubAccounting/Club%20Accounting%20Concepts.pdf

-Jim Thomas

Steven P Hansen on

It's quite simple if you think it through. Yes, you more
than doubled your unit value on the first $10 units you
purchased, however you have been purchasing units with
higher costs all along, ie, you won't expect to have dounble
the money you contributed last month which had a unit cost
of close to $26. If everyone had just contributed @ the @
$10 unit value level and never bought more, your calculating
process would have worked.

Mike Taylor wrote:
> Hi all,
> I'm the treasurer of my club and I am used to fielding
> questions on Unit Value. But yesterday one came up and I
> couldn't answer it.
>
> Our club started at $10 and current unit value is $26. So
> I proudly said that we'd more than doubled our money. I
> showed the relationship between the number of units * unit
> value = market value.
>
> Then someone showed me the member's contributions report,
> showing all $$ contributed, and it showed that member's
> contributions vs market value was nowhere near 2.6 times.
>
> I resolved I'd report back to the club to explain Can anyone
> help?
>
> figures are below:
>
> # units = 3,164.335556
> market value = 75,097.93
> unit value = 23.73
> total member contributions = 64,144.00
>
> So shouldn't the unit value be 75097.93 / 64144 = 1.17 * 10
> = 11.7?
>
> cheers
>
> Mike

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