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October 10, 2001 - Summary

ICLUBcentral releases NCA update version 2.1

by Matthew Stoller, Director of Product Development

Update version 2.1 of NAIC Club Accounting for Windows is now out! Hold the presses! An update for our accounting program! Whoa! Why am I so excited?

Well, on the one hand, I must admit it is totally unreasonable for most people to be excited about a new accounting program. On the other hand, if you've ever served as a club treasurer, you'd know that the accounting process can seem tedious at best, sometimes even scary and confusing. Anything that helps simplify this process is therefore pretty great. Not as great as, say, investing in Microsoft in 1991, but well, we can't all be as intelligent as that guy down the block. But still pretty great.

Instead of monotonously listing all the new and exciting features in this update to NCA 2—such as support for multiple clubs, online historical prices, a consolidated monthly report, graphs, a simpler backup procedure, and other things I also won't mention — I'll walk you through how the updated NAIC Club Accounting can help you with your duties.

Let's start by exploring how to use club accounting for the monthly meeting. After all, the monthly meeting is crunch time for the treasurer—the time you've got to get in the game, stay in the zone, be the ball. In other words, the monthly meeting is when you need to produce monthly valuation statements, member status reports, and transaction summaries, as well as answer questions from your club, explain why the books are off by twenty three cents without joking that you've been stealing in penny increments, and again tell everyone what CAR means. Don't be scared. It's not really that bad, and this update to NCA makes it much, much easier.

First off is meeting preparation. One of the most annoying parts of using the old club accounting was inputting the prices of each security for the monthly valuation date. Sure, you could look up the price on the Internet or in the newspaper and input it manually, but, well, let's face it, that's work, and if you aren't lazy, well, I am, and I don't feel like explaining again how to do it the long and silly way. NAIC Club Accounting 2.1 makes this process much easier by getting and inputting stock prices directly from the Internet with one single click! First, make sure you're connected to the Internet. Then, in NCA 2.1, simply go to 'Enter/edit new valuation,' choose the date for which you want prices, and select 'OK.' That's it. Prices come back within a few seconds. A job that used to be very annoying is now still annoying, but only because your portfolio is lower and not because it takes too much time to do a simple task!... (continued online)

[For more informative banter on NCA 2.1, the full text of Matt's article, and a special "Five Ways To Get Your Club To Finally Choose Another Treasurer," click on the following link: Matt's Article]

Upgrade to NCA 2 for free!

A special offer for investment clubs: open a new club brokerage account with TD Waterhouse and receive $100 CASH BACK on your purchase of NAIC Club Accounting version 2. Just follow these easy steps:

  1. Buy an Upgrade or New User copy of NCA 2.
  2. Open a partnership account with TD Waterhouse.
  3. Send us your completed rebate form.
  4. Laugh and dance around the room when you receive a $100 check from ICLUBcentral.

For more information, check out this link:

* Accounts must be opened in accordance with terms described on the promotional page. This offer is for a limited time.

ICLUBtherapist: Club Use of Stop-Loss Orders

Dear Doug:

What is your advice on the use of sell-stop orders if the club decides they have a loss risk tolerance of, say, 25%? We have discussed risk tolerance in our club but have no mechanism in place for acting on our expressed tolerance level. Currently, if a stock falls in price between meetings to the tolerance level, we are unable to pull together a vote to sell the stock. Is it a good idea to use sell-stop orders if you set the sell-stop low enough to allow for quite a bit of market volatility?

- Joanne

Dear Joanne:

I'm not a big fan of using stop orders in an investment club. For those unfamiliar with the term, a sell-stop order (also known as a stop-loss order) instructs your brokerage firm to sell the shares of a stock you hold in your account if its price falls to a designated level you set. Stop-loss orders are intended to be a risk management tool, to protect you from a stock that falls in price—in other words, to stop a loss in your account.

I wonder, how did you decide on setting stop-loss prices at 25% below the most recent price of the stock? By the time a stock has fallen 25%, most of the damage will usually have already been inflicted on your portfolio. What's the chance that the stock could decline more than that between your club meetings? If your club is speculating in stocks, rather than investing in quality companies with a careful and thoughtful strategy, then I think your club may be missing the point of club investing. Investing strategies that require constant vigilance and the use of stop orders may work for individuals with lots of time on their hands, but not for clubs.

Another problem with stop-loss orders is that they create a transaction in your portfolio with no intervention on the part of your club. I'm a firm believer that clubs should have a "sell discipline" in place, just as they have a strategy for buying stocks. Whenever you sell a security, there are tax ramifications. Are you incurring a gain or a loss, and is it short-term or long-term? What are the tax consequences of that transaction, and will you now be looking to execute an additional transaction to offset a gain?

The larger problem with stop-loss orders is that you may be taking an action precisely opposite that suggested by the price decline. If you have built a portfolio of carefully selected, high-quality, long-term growth stocks, a short-term drop of 10%, 20%, or even 30% may be painful, but it may not necessarily mean that the stock no longer belongs in your portfolio. In fact, if you have a long-term perspective, the price decline may even represent a great chance to buy more shares at the depressed price. But if the shares have already been sold at a loss, you'll have to wait 30 days so you don't incur the wrath of the wash sale rule. That probably means you'd have to wait another meeting or two before re-evaluating the stock, and who knows whether the price will have rebounded by then?

I once came across a club that faithfully set stop-loss orders on all the stocks in their portfolio. In between meetings one month, a bit of market turbulence knocked most of the club's portfolio down to its stop prices, so most of the club's portfolio was sold off as the stop-loss orders were executed. By the next meeting, however, most of the stocks had recovered and were actually a bit higher than at the club's previous meeting. But the club had nothing to show for their careful use of stop-loss orders except a whole lot of capital gains and losses—and a lot of cash in their account.

There's a reason that some people refer to stop-loss orders as "broker enrichment orders": investors end up paying commissions, often needlessly. My prescription for your club is a dose of patience. If a stock drops between meetings, your club should wait until its next meeting and then review the reasons for the decline. Only then should they make a decision to sell—or to hold, or to buy more shares.

- Doug

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