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June 18, 2002 -

Barb's Tips: Effective Learning for NAIC Classic PERT & PMG

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:

  1. Ensure that you set the Beginner Level of operation. Click Options/User level/Beginner.

  2. 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.

  3. Click the menu item View/PMG or View/PERT depending on which report you wish to review.

  4. Read and follow each prompt in the Prompt window. Make sure you focus on the step indicated before proceeding.

  5. 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

Last Chance for $99 Upgrade to NCA 2

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 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:

Investment Club Therapist: "Buying Out" a Withdrawing Member

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


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 !

ICLUBcentral at CompuFest in New Orleans

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

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