Leaving Member
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Leaving Member Lynn--look at what Lynn had to say--seems to be good advice to me. ----- Original Message ----- From: "NICOLE MOORE" <jandnmoore@aol.com> To: ckwils@mchsi.com Sent: Sunday, April 10, 2011 5:24:33 AM GMT -08:00 US/Canada Pacific Subject: Re: Leaving Member Hi Colin, Our PA says that we can use a cash, securities, or a mix to pay withdrawing member. We have decided to go with an all securities payment option. But now we are unsure how to select the stocks to use. Do we just select a particular number of each or is there a method/formula that can be used? Nicole Use shares of a stock that has the largest capital gains. Best for club and good for member. Been there/done that. On Sun, Apr 10, 2011 at 4:45 PM, <ckwils@mchsi.com> wrote: Lynn--look at what Lynn had to say--seems to be good advice to me. -- Del -- In Tucson. Where the sun shines 350 days a year! Yep, I agree with Del about using appreciated stock. To determine which stock or stocks you will give up, I suggest you consider the following:
What stocks would the departing member like to take with her? We always ask our members which 3 would they prefer. Then we take them into serious consideration - provided it's a win-win for the club. So let's say we were planning on getting rid of a stock anyway, and the departing member wanted it, we may give it all to her, regardless of whether there's a large gain. But we wouldn't give it away if it were a loss. We'd sell it and give cash so everyone could benefit from the capital loss. (Most members wouldn't ask for a loser anyway!)
Look for stocks that have become too large in proportion to your portfolio (big gain or not). It doesn't benefit the club if say 56% of your portfolio is Cisco or Johnson & Johnson. This may be a good reason to redo your diversification.
Look for the stock or stocks with the largest gains. Redo your SSGs if you use that form. You may find there's not enough upside left to hang on to them.
Then, of course, the last thing would be to look at which losers you would like to dump for a capital loss and cash to payoff the member.
Don't get anal about the percentages. Just play with some scenarios that would best benefit your portfolio AFTER the member is gone. The bivio withdrawal system will handle it for you.
Here's an example. Let's say you owe your member $1,000.
She wants CSCO. You only have $400 in that stock.
At today's price that would be 22 shares ($400 div. by $17.55/share today)
You have too much JNJ, so you give her the balance of $600
At today's price that would be 10 shares ($600 div by. $59.84/share today)
22 shares x $17.55 = $386.10
10 shares x $59.8a4 = 598.40
Balance in cash would be = $15.50
All you need to do is plug in the 22 shares and 10 shares into the withdrawal form and it will calculate the amount of cash due, minus any fees you or the broker charges (per your partnership agreement), and it will show the "new" cost basis in the stock for the departing member, and her gain or loss in the club.
You can do this, review the withdrawal report (bottom of the member page), and if you don't like it, you can delete it and use another scenario. You'll see that it's very easy.
One note: Most clubs have a valuation date. This is the date every month at which your portfolio is valued for the express purpose of people coming into or leaving the club, Ours is the Friday prior to our Tuesday meeting. If we accept a resignation at the March meeting, the value of the departing member's capital account will be based on the April valuation date. This is meant to keep members from timing their departure. Whatever their value is on that 2nd Friday in April, it remains that value until the 2nd Friday in May. So the amount you owe them doesn't change.
When you are calculating what stock you will give them. it will change between the time you decide and the time you actually transfer it. But it's usually by only a small amount. Don't sweat it. bivio will adjust it in cash.
Good luck!
Lynn O. Great post from Lynn, but I want to clarify the phrase "it (meaning the value of the stock) will change between the time you decide and the time you transfer it." I believe the practice should be to use the same valuation date for both valuing the member's ownership in the club as well as the price of the individual stocks that are transferred. Any change in value of the stock, up or down, between the valuation date and the date the stock arrives in the member's individual brokerage account accrues to the benefit/detriment of the individual member. Jack Ranby, Treasurer Grants Partners Investment Club Jack is correct.
Ira Smilovitz Join me at InvestEd 2011 In a message dated 04/11/11 12:07:14 Eastern Daylight Time, ranby@azbar.org writes:
Thanks for the correction. I was SO close! <G> When we transfer stock. we calculate how many shares ahead of the valuation date, get all the pertinent information from the departing member about their broker, and then put in a transfer of the shares over the weekend. So I never see a difference. I do the withdrawal, cut a check for the balance, and mail it on Monday morning.
I run a valuation statement "before" I withdraw the member and another one "after" the withdrawal so the remaining members can see both at Tuesday's meeting.
Lynn O. |
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