bivio Investment Club Index

What is the Club Index?

The bivio Club Index is the first, completely scientific tool to determine how well investment clubs pick stocks. The Club Index is constructed from actual club holdings and represents the collective wisdom of bivio clubs.

To create the Club Index, on 1/1/2001 we used an anonymous and secure computer program to compile the stock ownership of all bivio investment clubs. That portfolio was assigned a base value of 10,000. At the end of each trading day, the index is updated with market closing prices. At the beginning of each month, the basket of stocks is adjusted to reflect current club stock holdings.

Is the Club Index price-weighted or cap-weighted?

Neither. The Club Index is weighted by the sum of bivio club holdings. The index reflects the current stock holdings of bivio investment clubs. As an example, if clubs own $10M of CSCO stock and $5M of MSFT stock, the index portfolio would include, in dollar terms, half as much MSFT as CSCO.

The bivio Club Index is similar to the Wilshire 5000 Index, in that it is a good approximation of the portfolio dollar changes of the investor group it represents. The Wilshire Index represents the broadest possible group of investors. In contrast, the bivio Club Index is focused on investment club investors.

Although popular, the oldest indices are somewhat arbitrary. The S&P 500 Index is a portfolio of large cap stocks selected by committee. There is no clearly defined group of investors that it would represent. The Dow Jones Indices are not based on the market value of a portfolio of stocks at all, but on their price changes in numerical terms.

Why do you list 50 stocks in the index portfolio?

There are diminishing benefits in including more than 50 stocks in the Club Index. To avoid adding noise to the Club Index, we require that each stock be held by several dozen clubs. The top 50 account for 60% of club holdings, a high enough fraction for the index to represent total club holdings. We will increase the number of stocks in the index portfolio over time. Ideally, we would cover all clubs and all holdings.

How do you handle index portfolio changes at month-end?

At the end of each month, we re-balance the index portfolio to match the then current bivio club holdings. You'll find the necessary buy and sell transactions in the index account history. Keeping with index tradition, a zero tax rate is assumed on any capital gains.

Does the index account for dividends and splits?

Yes, the effects of splits and other corporate actions are included. Dividends are reinvested each day back into the index. In contrast, the S&P 500 does not include dividends, but publishes a separate number along with the index that includes the effects of dividend reinvestment. The advantage of including dividends is that the performance of the index is its current value divided by its initial value - no further calculations are necessary.

How many total dollars are represented by the index?

The index is based on several tens of millions of dollars in holdings. Not all bivio club holdings are included in building the index each month. bivio clubs are filtered to avoid adding invalid data to the index. We look for specific bivio usage patterns that identify a bivio club as being active and valid.

Does the index measure club performance?

Yes and no. Individual clubs may perform better or worse than the Club Index. On average, clubs will perform worse than the Club Index, for several reasons: clubs pay trading commissions, they have expenses, they hold cash and other non-stock investments, and they pay taxes. The index measures "stock picking ability" of investment clubs, not actual club performance.

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