Differences in Members' Units
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Differences in Members' Units Warren Hercules raises a
question.........
Even though I have entered equal payments, the
same payment dates, and the same valuation dates, the number of units shown all
members is not the same. The total amount paid is the same but the market values
are affected. I don't understand the reason?
As it happened, the actual transaction dates and
valuation dates were not the same for all members, and therefore the units
awarded were slightly different. However, I wanted to use this inquiry as the
basis for a column, since this question comes up quite often.
There is some confusion about transaction dates and
valuation dates. My recommendation is that treasurers use the date that the
check was received as the transaction date. I also believe that each club should
set a monthly valuation date. For instance, this date could be the day before
the meeting, the end of the month, whatever, but it should be the same for all
members' contributions for that month. My club uses the end of each month as a
valuation date. Members have until the 5th of each month to get their checks in.
If a check is received after the 5th of the month, it will not be included with
that month's contribution, but will have to wait until the following month.
Other clubs handle the situation by assessing a late fee penalty for
contributions received after the cut off date.
Notwithstanding the above, I urge clubs
NOT to attempt to keep contributions and units equal
between members. Herb Barnett has written a very good article on this, which can
be found at
Equal Partners and
Why That Doesn't Work - by Herb Barnett
http://www.better-investing.org/clubs/equal-partners.html There are just too many problems that arise in
trying to keep all members equal. What do you do if a member is hospitalized for
a long period of time? Or if the member is on an extended vacation for over a
month? In my opinion, a club should be flexible enough to handle these
situations, but it is very difficult if the club tries to adhere to the policy
of keeping everyone equal.
Also, as the club matures, the members' values are apt to
become quite large. It will be increasingly difficult to bring in new members at
the same level. Both bivio and NCA have geared their software to accommodate
varying contributions by the membership, so the record keeping is not a
factor.
Finally, there is the question of how the votes should be
tallied if the members' units are not all the same. Some clubs would still use
one person, one vote, while others would opt for voting on the basis of units
owned. This is a separate question and will have to be addressed by each club
when they are forming their philosophy on investing as a club.
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