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June 18, 2002 -
There are a number of
challenges when learning NAIC investing methods. Some of these may include
learning about your computer, learning about the Windows environment and its
operation, learning the program, and lastly learning about investing in general.
As a beginner, you should
first concentrate on NAIC Classic’s Stock Check List and Stock Selection Guide
(SSG). These key reports help you understand the important characteristics of
companies. With a good knowledge of the SSG, you can then progress to the
Portfolio Management Guide (PMG) and Portfolio Evaluation Review Technique
(PERT) reports. These will help you learn about managing the stocks in your
portfolio.
The Beginner level of
operation for NAIC Classic PERT & PMG is designed to thoroughly review all
areas of these reports. The key to learning is consistency and repetition. By
taking you through each report one step at a time and focusing your attention on
specific details, the program can ensure that nothing is missed. The Stock Wiz
(for the red circles) and the Help system complement the learning process by
offering additional information, should it be required.
Also, be sure to follow the
instructions given in the Prompt window on the left side of the screen. This
will ensure that you complete the study in detail, missing nothing.
For an effective learning
experience, follow these simple steps:
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Ensure that you set the
Beginner Level of operation. Click Options/User level/Beginner.
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Open the SSG for one of
the demo companies provided with the program. These include Merck, Pfizer,
Eli Lilly, Bristol-Meyers Squibb, and Schering-Plough. If you updated from
an existing version of NAIC Classic, you had the option to add these
companies.
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Click the menu item
View/PMG or View/PERT depending on which report you wish to review.
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Read and follow each
prompt in the Prompt window. Make sure you focus on the step indicated
before proceeding.
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Use Stock Wiz (for red
circles) and the Help features of the program for areas where additional
instruction is needed.
As you repeat this exercise
with other companies, you will learn about each section of a report, how to use
it, and how to interpret it. Eventually you will be able to move to the
Experienced Level where you determine the course of the study.
by Barbara
DalMaso, co-founder of STB Investor Software
Get current with tax law by upgrading to NAIC Club Accounting for Windows version 2. Users of NAIC Club Accounting 1.04 should remember that the $99 discount upgrade expires June 30, 2002. To purchase, see http://www.store.yahoo.com/betterinvesting/25103.html or call NAIC at 1-877-275-6242, ext 0.
Your club can upgrade to NCA 2 for free by opening a TD Waterhouse club account. For more information, please visit:
http://www.iclub.com/promotions/tdwaterhouse
Dear Doug:
We have a member that
wants out of the club. Another member wants to buy her out. We use NAIC Club
Accounting. How can we do this?
- Kathy
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Dear Kathy:
The Investment Club
Therapist’s case files are filled with club members who have asked this same
question – right under a tab labeled "Investment Club Delusions."
(It’s a rather fat file; many clubs seem to labor under other misperceptions
that are much graver than this affliction.)
A "buyout"
suggests that one or more of your members makes a payment to another member (or
to the club) in order to "buy" the withdrawing member’s shares.
Superficially, this is what you seem to think a buyout should accomplish – you
don’t want the club’s total value to diminish. But it’s confusing you as
the club treasurer because there’s no function in the NAIC Club Accounting
Manual or in the software that seems to accommodate a "Member Buyout."
To start off, you must first
dispossess yourself of the notion that such a thing as a "member
buyout" even exists at all. A member wishes to withdraw from your club.
Your club’s operating agreements establish the date upon which that member’s
club account is valued. On that date, each unit in the club has a set value;
multiply the number of shares owned by the member times the unit value, subtract
any withdrawal fees, and amount of the member’s withdrawal. The club now has a
liability – it owes the withdrawing member cash or securities or some mix
thereof that adds up to the withdrawal amount. That’s standard procedure for
any member withdrawal. Even if you don’t have cash on hand, you have a
liability that you need to address. The departing members units are then
retired, taken off the books, and never seen again.
Now, if your club doesn’t
have enough cash on hand to take care of this liability – to pay out the
withdrawing member – you’ve got a decision to make. Are you going to sell a
stock in order to raise cash? Or transfer appreciated shares of stock to the
withdrawee? Or try to raise more cash from existing members? (It’s my opinion
that clubs too often overlook the opportunities to sell or transfer shares to
cash out a member – as your club seems to have done – but these two choices
often are more beneficial to the club than raising cash. But more on that in a
later diagnosis.)
Back to the buyout scenario.
If a member steps up and offers to "buy out" the departing member’s
shares, what would actually happen? The units have already been retired, so even
if the member contributed the exact amount of the withdrawing member’s capital
account on the same valuation date, that cash is going to be used to purchase
units in the club at the current unit value. There’s no discount to be
obtained – no departing member is going to accept less than full price for
their shares in your club, and your club isn’t offering discounts, is it?
There’s no personal advantage at all to the buyer to contribute the extra
money, just the benefit (perceived or actual) to the club of being released from
thinking about what holdings might best be divested from its portfolio.
The conclusion? A
"buyout" is two transactions: the withdrawal of one member and the
investment of another. They’re unrelated in any official way on the books;
they’re both part of normal operations.
Does that mean you shouldn’t
ask or allow members to make additional contributions to allow you to cash out
departing members? Of course not. It’s part of your club’s cash flow
management practices. Many clubs remind members about pending withdrawals and
suggest that the following meeting may be a good time to make additional
contributions if members don’t want to consider selling any holdings. But
referring to these kinds of transactions as "buyouts" is a misnomer
and only creates more confusion.
- Doug
Doug Gerlach, author of several popular investing books and websites, serves in his spare time as Secretary of NAIC's Computer Group Advisory Board. To ask Doug an investing question yourself, just write to askdoug@iclub.com
!
Come ask us questions, attend software seminars, and receive lab tutorials of our software products at NAIC's CompuFest, being held this weekend (June 21-23) in New Orleans, LA.
With educational seminars beneficial to individuals at all investing skill levels, CompuFest is a great chance to learn better how to use computer technology to invest better. For more information, please see http://better-investing.org/about/events/compufest.html.
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