response to " new members valuation being worth more
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response to " new members valuation being worth more A reader comments on a recent topic in
trez_talk.....
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Dear Trez
I am tired of the whining that goes on in Investment club chatrooms across America, Especially when it comes to new members. We have a similar situation and I am happy for the member because new members can be the lifeblood of a club. Nonetheless, I have heard of some clubs that require a new member to pony up several thousand dollars in back dues. This tactic effectively prevents any new members from entering a club plus it can backfire because if the new member enters on a new bull market phase they will have the greatest paper gain further pissing off the old guard . We look at our club like a mutual fund . Members enter and dollar cost average each month. WE require new members to commit for one year. On our anniversary, WE have "open enrollment" & members who want to leave are welcome to leave with a signed dated resignation letter. a few have but most have hung in there. One final note, when old members leave. we prefer to cash them out instead of selling "their shares." in order to cash them out. This is all done legit with our accounting & Of course the shares originally bought may go up over time. $$$$$$$$$$$$$$$$$$$$$$$$$$$$ While I would not characterize the original post as a
'whine', I agree with most of the sentiments expressed above. The unit-value
system does allow for differing amounts being invested by the members, and it
treats all fairly. As the writer points out, trying to keep all investments
equal poses a real hardship on new members, and, in the end, is not good for the
club.
We advocate that members should never 'sell' their shares
upon leaving the club. Rather, the club should redeem the units, and allow new
or present members to pay in additional amounts. This maintains an audit trail,
and allows the club to keep track of the tax basis for each member. Also, clubs
should look at paying off departing members by using appreciated stocks, rather
than cash. This can postpone taxable income recognition for the club, and can
also be of benefit to the departing member. For further details, see the
following article by Jerry Dressel.
Member Withdrawals - payout options for your
club.
http://www.bivio.com/trez_talk/mail-msg?t=2984700003 We appreciate comments on any
trez_talk article, and endeavor to print them.
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