Can Apple Hit $2000? Can You Win a 1 Year Free bivio Subscription?
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The frenzy is here so I just had to add a crazy headline to the mix. Apple announces it's first quarter 2011 earnings on Tuesday and there are all sorts of people predicting what Apples stock price will rise to. If you own it, you might be opening the articles with the headlines like ours hoping for confirmation of your investing genius. If you don't own it, you're probably reading all the "Can Apple Sustain it's Current Price?" headlines that are equally abundant and patting yourselves on the back for not getting caught up in the hysteria. What should you be doing? We'd suggest less headline reading and more learning about Apples business so that you can make your own educated judgments about it's opportunities for sales growth and the level of expenses it will have going forward. In the December Club Meeting Meeting, we discussed net margin. We showed how you could use the guidance given by Apple in their fourth quarter 2010 earnings conference call to produce an expected income statement. You could use this to predict what their 2011 first quarter earnings might be. When that was multiplied by fairly reasonable P/E of 21, it led to a stock price of $341. At the time of the meeting in early December, Apple stock was trading around $318 a share. In fact, people asked during the question session whether the predicted stock price was a 5 year price. They were surprised to hear it was for the quarter that will be reported next Tuesday. Apple hit $341 this past Monday. The $341 per share projected price was calculated at the beginning of December using actual guidance from Apple management and a reasonable assessment of recent Price to Earnings multiples for Apple stock. You can learn to make judgments like this yourself. So, instead of reading everyone elses opinion, spend your time learning how to do that. The Club Meeting Meeting presentations for November, December and January, discussed making judgments about 3 fundamental parameters that you can use to start to make your own judgments. They are Sales Growth, Net Margin and P/E ratio. The presentations are all posted at www.bivio.com/clubmm. Because we think you learn best when you try doing, we are hoping to encourage you to try making your own judgments by entering our contest to predict what Apple will announce for earnings on Tuesday. The club whose predictions come closest will will win a free year of bivio for their club. Entries will be accepted until midnight Pacific time on Monday Jan. 17. You can find a link to a spreadsheet you can use to help you make your judgments and a link to enter the contest also at www.bivio.com/clubmm. What do you have to lose? Why don't you jump in and give it a try? -- Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Hello, I'm sure this has been asked before, but I'm not sure where to find the answer: Two of our 6 members want to withdraw, and two new people want to buy them out and enter the club. As the accountant, I'm curious how to do this/tax implications/anything else we might need to know? As an additional FYI, we have some apple stock, and we would like to make this switch ASAP, as we don't want our withdrawing members to profit after having given notice and --more importantly--the new members have given us the top amount they can afford to buy in at and it is very close to what our exiting members shares are now. We are nervous that if we wait apple will shoot up and the new members wont be able to afford to join. Ellen Ellen Shershow Pena Photography 415.690.0278 Ellen,
Having the new members "buy out" the withdrawing
members is not the way to approach this. Pay the withdrawing members their
market value (paying the withdrawing members in any other way will probably
result in the remaining members paying capital gain taxes earlier than
necessary). Have the new members join with a modest amount
(why require anything more than the minimum monthly
investment?). Do the remaining club members want some tax
deferal for as long as they remain in the club? If so, have they
considered transferring highly appreciated stock (Apple, for example) to
the withdrawing members?
Are you saying your club insists that a new member
make an initial lump sum investment equal to the current market value
of existing members? Why would the club want to maintain such a serious
barrier to finding willing new members? A major reason for using unit
accounting is to make that sort of thing unnecessary.
> Two of our 6 members want to withdraw, and two new people want to buy
them out and enter the club. As the accountant, I'm curious how to do
this/tax implications/anything else we might need to know? As an additional FYI,
we have some apple stock, and we would like to make this switch ASAP, as we
don't want our withdrawing members to profit after having given notice and
--more importantly--the new members have given us the top amount they can afford
to buy in at and it is very close to what our exiting members shares are now. We
are nervous that if we wait apple will shoot up and the new members wont be able
to afford to join. <
-Jim Thomas Jim, You are a wealth of knowledge--and now I have more questions:
We are a very new club, we have only been functioning for about a year and a half, and we really JUST have socked away enough cash to start buying larger stocks. If the exiting members take the cash (which is what they want, and what we agreed to in our original signed agreement) it will almost completely wipe out our cash balance and we'll have to begin to build it from scratch again. We were all feeling discouraged until two of our friends came up with the idea to buy out the exiting members--so--at this very new point in our club--it seemed to make financial sense. We are all very green at investing and tax law so perhaps this was naive of us. In addition, we only bought 2 apple stocks. Again, as a new club our cash reserves are small so it was all that worked. Ellen Shershow Pena Photography 415.690.0278 On Jan 17, 2011, at 10:50 AM, Jim Thomas wrote:
Ellen: Please allow me to divide your questions into several subparts. First the mention of Apple stock. The reference infers that your club has accrued capital gains in the stock based on the investment of cash supplied by all the members. Your desire to complete the withdrawal of members because they might further profit from their investment in the club is misplaced. As long as their investment in the club is at risk, they are entitled to share in the gain as well as the loss (at the time of my writing this answer, Apple is down on the European markets based on the news that Steve Jobs is taking a leave of absence). Once the withdrawing member's units are valued for purposes of withdrawal in accordance with the partnership terms, then common courtesy requires that you transfer their assets back to them. You need to follow the timeline spelled out in your partnership agreement to complete the withdrawals. Second, regarding your question about tax implications. If you choose to sell stock that has a gain to pay off the withdrawing members, the remaining members will incur captial gains earlier than they need to. To minimize the tax implications, the normal recommedation is to transfer shares of stock having a gain to the withdrawing members, and sell stock having a loss if necessary to raise cash to complete the withdrawal. Third, the amount the new members have to pay to join should have no relationship to the amount due to the withdrawing members. These are two separate events. Each event could occur in the absence the other. Your partnership agreement should provide what is the minimum buy-in required of new members. In the case of my club, it is $500. Remember, it is unnecessary (and extremely difficult to maintain) to have every member have the same number of units. In the case of my club, none of the ten members has exactly the same number of units. And the difference between the member with the most units and the member with the least is significant. It does not mattter, bivio software can handle it. Each of these topics have been discussed in great detail previously. I am sure if you search bivio website, you will find further discussion of each of them. Jack Ranby, Treasurer Grants Partners Investment Club Ellen Shershow wrote: > Hello,I'm sure this has been asked before, but I'm not sure where to find the answer:Two of our 6 members want to withdraw, and two new people want to buy them out and enter the club. As the accountant, I'm curious how to do this/tax implications/anything else we might need to know?As an additional FYI, we have some apple stock, and we would like to make this switch ASAP, as we don't want our withdrawing members to profit after having given notice and --more importantly--the new members have given us the top amount they can afford to buy in at and it is very close to what our exiting members shares are now. We are nervous that if we wait apple will shoot up and the new members wont be able to afford to join.Ellen > Ellen Shershow Peña Photographywww.ellenswebsite.comwww.ellenswebsite.com/category/blog/415.690.0278 http://www.bivio.com/trez_talk/mail-msg?t=2984700003 is
an overview of payment options for a full withdrawal.
> Are you saying that there are tax implications to having new members
buy out exiting members? <
I'll let Rip address that in detail. But the
short answer is that none of the Investment Club Accounting software
supports one member literally buying out another member. Withdrawing
members get paid (the tax consequences depends on the method of payment) and new
members start investing. That's the recommended approach. Two
completely independent accounting events.
> If the exiting members take the cash (which is what they want,
and what we agreed to in our original signed agreement) ... <
That is exactly why the BI model partnership
agreement specifies that, for a full withdrawal, the remaining club members get
to choose the method of payment (stock or cash), not the withdrawing
members.
Do the withdrawing members realize that if they
receive transferred stock as payment for their withdrawal, they can turn around
and sell those shares ASAP and be in very nearly the same tax position
vs. getting paid by the club in cash? Better for the club (no current tax
impact and no need for large amounts of cash); no significant tax difference for
the withdrawn members. It's a win-win situation.
> ... it will almost completely wipe
out our cash balance and we'll have to begin to build it from scratch again. We
were all feeling discouraged until two of our friends came up with the idea to
buy out the exiting members--so--at this very new point in our club--it seemed
to make financial sense. <
You certainly can have the new members invest
an amount of cash that makes the club comfortably able to pay the
withdrawing members in cash. It's still two independent transactions (no
one is "buying out" anyone else). But, as you pointed out, that's a
serious barrier to entry for the new members.
-Jim Thomas Jack, Thank you so much for this very detailed answer. One more question: Because we are a new club (about a year and half old) our portfolio is quite small. In fact, the full amount per person remains at just under $500. Part of why the new members 'buying out' the exiting members was appealing to us is that, were we to pay them in cash (and we say cash in our agreement--this was clearly a naive mistake on our part which I will suggest we amend, but for now it is what it is) we would have to pay the two of them a combined amount of just under $1,000. With 6 people and monthly dues of only $20 it would take us some time to build up enough cash to purchase stock again. Rip West sent me a link to this article: Jim Taylor's document, starting at page 10. at the very end, Mr. Taylor states: "From a practical point of view, especially when the value of a full withdrawal is relatively small, it's certainly less complicated to pay a full withdrawal in cash. If a club decides to sell securities to raise the necessary cash, it's generally best to sell securities held at a loss. Would under $500 be considered quite small? I suppose there is some psychology at work here; we are all new at investing and none of us can afford more than $20 per month, the first year of our club was frustrating as we could never afford to purchase much of anything. We felt that we had finally built up enough cash to do such, but would not be able to if we lose all our cash to the exiting members--hence the new members offering to 'buy in' sounded perfect. I appreciate any advice! Ellen Ellen Shershow Pena Photography On Jan 17, 2011, at 11:03 AM, John W Ranby wrote:
This is very helpful-- So, in effect--the withdrawing members 'sell' their stock back to us? Or simply sell it? Sorry if these are naive questions, we are new to this! Ellen Shershow Pena Photography 415.690.0278 On Jan 17, 2011, at 11:16 AM, Jim Thomas wrote:
> In addition, we only bought 2 apple stocks. Again, as a new club our
cash reserves are small so it was all that worked. <
Just two shares of Apple stock? In that case
I should mention that for pretty small dollar amounts, the reality
of paying withdrawing members in stock could be more trouble than it's
worth in terms of paperwork.
-Jim Thomas
> Rip West sent me a link to this article: Jim Taylor's document,
starting at page 10. <
Actually that's my document (Jim Thomas). Rip made a typo.
> So, in effect--the withdrawing members
'sell' their stock back to us? Or simply sell it? <
If withdrawing members are paid in stock, they are
free to sell that stock on the open market at any time. That is what
I meant.
-Jim Thomas Jim, Aha! Thats hilarious! So let me ask YOU this question. At the end of that article, you say: "From a practical point of view, especially when the value of a full withdrawal is relatively small, it's certainly less complicated to pay a full withdrawal in cash." So is under $500 per member, for a 6 member club, considered small? This amount reflects our total value, current stocks+ available cash Ellen Ellen Shershow Pena Photography 415.690.0278 On Jan 17, 2011, at 11:27 AM, Jim Thomas wrote:
> Because we are a new club (about a year and half old) our portfolio is
quite small. In fact, the full amount per person remains at just under
$500.
... we would have to pay the two of them a combined amount of just
under $1,000. <
With those dollar amounts, practical considerations
may make it best to pay in cash and save the paperwork hassle (and
possible expense) of transferring just a few shares of stock that the
withdrawing members who would just turn around and sell ASAP. If the
withdrawing members have existing brokerage accounts and the club's broker will
allow transfer of stock to those accounts without cost, then paying in stock
(even just a few shares) could make sense. Otherwise, paying in cash is
probably more practical.
> I suppose there is some psychology at work here; we are all new at
investing and none of us can afford more than $20 per month, the first year of
our club was frustrating as we could never afford to purchase much of anything.
We felt that we had finally built up enough cash to do such, but would not be
able to if we lose all our cash to the exiting members--hence the new members
offering to 'buy in' sounded perfect. <
If the club can find two *high quality* new
members willing to invest $500 each for the long-term that's fine. The
club can use that cash to pay the withdrawing members. It's not really one
member "buying out" another, but it accomplishes the purpose of keeping the
club's cash about the same both before and after the withdrawals are
processed. It's likely not the best
situation tax-wise, but it may be better from a perspective of psychology.
(On the other hand, how will the new members feel
if their $1,000 cash immediately leaves the club and is not available
to be invested.)
One solution to the issue of how long it
takes to build up cash before having enough to purchase anything is a
broker such as FOLIOfn. That sort of broker makes it easy to invest
whatever dollar amount you want (commission free) without needing to worry about
how many shares are involved (because fractional shares are purchased as
needed). For more information about that broker and their relationship
with BI, see https://www.folioinvesting.com/betterinvesting/ .
I have no personal experience with FOLIOfn, but I've heard good
things.
-Jim Thomas
Jim, Rip and John, Thank you so much for all of your information. I am now able to go back to my members and explain all of our options clearly and correctly. Based on this new information, I'll also suggest we make some changes to our original club contract. Much appreciated! Ellen Ellen Shershow Pena Photography 415.690.0278 On Jan 17, 2011, at 12:38 PM, Jim Thomas wrote:
Why is your club buying very expensive stock? You are missing out on plenty of good companies that are much cheaper. My club started with 7 members and about $225 a month to invest. We didn't buy expensive stocks, our typical stock was around $10-20 each. We were very happy doing that. You can save up three months and have $360 to invest. I believe that your members will be happier investing more often. And your money isn't sitting around in a savings account hardly making any interest while you save up for a expensive stock. Actually, our more expensive stocks have not been our best performers. John Ellen Shershow wrote: > Jack,Thank you so much for this very detailed answer.One more question:Because we are a new club (about a year and half old) our portfolio is quite small. In fact, the full amount per person remains at just under $500.Part of why the new members 'buying out' the exiting members was appealing to us is that, were we to pay them in cash (and we say cash in our agreement--this was clearly a naive mistake on our part which I will suggest we amend, but for now it is what it is) we would have to pay the two of them a combined amount of just under $1,000. With 6 people and monthly dues of only $20 it would take us some time to build up enough cash to purchase stock again. Rip West sent me a link to this article:Jim Taylor's document, starting at page 10.http://www.bivio.com/pugetsoundbi/files/ClubAccounting/Club%20Accounting%20Concepts.pdf at the very end, Mr. Taylor states:"From a practical point of view, especially when the value of a full withdrawal is relatively small, it’s certainly less complicated to pay a full withdrawal in cash. If a club decides to sell securities to raise the necessary cash, it’s generally best to sell securities held at a loss.Would under $500 be considered quite small?I suppose there is some psychology at work here; we are all new at investing and none of us can afford more than $20 per month, the first year of our club was frustrating as we could never afford to purchase much of anything. We felt that we had finally built up enough cash to do such, but would not be able to if we lose all our cash to the exiting members--hence the new members offering to 'buy in' sounded perfect.I appreciate any advice!Ellen Ellen Shershow Peña Photographywww.ellenswebsite.comwww.ellenswebsite.com/category/blog/415.690.0278 > > On Jan 17, 2011, at 11:03 AM, John W Ranby wrote:Ellen:Please allow me to divide your questions into severalsubparts.First the mention of Apple stock. The reference infers thatyour club has accrued capital gains in the stock based onthe investment of cash supplied by all the members. Yourdesire to complete the withdrawal of members because theymight further profit from their investment in the club ismisplaced. As long as their investment in the club is atrisk, they are entitled to share in the gain as well as theloss (at the time of my writing this answer, Apple is downon the European markets based on the news that Steve Jobs istaking a leave of absence). Once the withdrawing member'sunits are valued for purposes of withdrawal in accordancewith the partnership terms, then common courtesy requiresthat you transfer their assets back to them.You need to follow the timeline spelled out in yourpartnership agreement to complete the withdrawals.Second, regarding your question about tax implications. Ifyou choose to sell stock that has a gain to pay off thewithdrawing members, the remaining members will incurcaptial gains earlier than they need to. To minimize the taximplications, the normal recommedation is to transfer sharesof stock having a gain to the withdrawing members, and sellstock having a loss if necessary to raise cash to completethe withdrawal.Third, the amount the new members have to pay to join shouldhave no relationship to the amount due to the withdrawingmembers. These are two separate events. Each event couldoccur in the absence the other.Your partnership agreement should provide what is theminimum buy-in required of new members. In the case of myclub, it is $500. Remember, it is unnecessary (and extremelydifficult to maintain) to have every member have the samenumber of units. In the case of my club, none of the tenmembers has exactly the same number of units. And thedifference between the member with the most units and themember with the least is significant. It does not mattter,bivio software can handle it.Each of these topics have been discussed in great detailpreviously. I am sure if you search bivio website, you willfind further discussion of each of them.Jack Ranby, TreasurerGrants Partners Investment ClubEllen Shershow wrote:Hello,I'm sure this has been asked before, but I'm not sure where to find the answer:Two of our 6 members want to withdraw, and two new people want to buy them out and enter the club. As the accountant, I'm curious &nbsp;how to do this/tax implications/anything else we might need to know?As an additional FYI, we have some apple stock, and we would like to make this switch ASAP, as we don't want our withdrawing members to profit after having given notice and --more importantly--the new members have given us the top amount they can afford to buy in at and it is very close to what our exiting members shares are now. We are nervous that if we wait apple will shoot up and the new members wont be able to afford to join.EllenEllen Shershow Peña Photographywww.ellenswebsite.comwww.ellenswebsite.com/category/blog/415.690.0278 John, Its a great question that our club has discussed at length. With the exception of apple, everything we own is under $15 a share. We spent 2 meetings discussing apple, did a stock study on it, and after much discussion put it to a vote and decided in a 4-2 vote to purchase two stocks. Part of the argument to purchase apple was to have a more diverse portfolio. This far, all of our stocks had been relatively small companies. I suppose only time will tell if this was the correct thing to do or not! Ellen Ellen Shershow Pena Photography 415.690.0278 On Jan 18, 2011, at 8:15 AM, John Rice wrote:
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