Thursday, February 17, 2005

Investment Club

This month's meeting was moved from Valentine's Day, as a few of the couples protested the conflict.

Our big business item to discuss was how to cash out members that want to depart! For various reasons, four members are leaving, due to family (newborns) and other time considerations. Unfortunately, those four members also include all of the founders of the club. So we remaining members talked about the future of the investment club and what we wanted to get out of it. None of us are quite sure how to continue - in one sense, starting from scratch is easy because the entire focus is finding stocks to buy. We're at the point where we can't really buy a new stock every month or every other month, so the club would need to shift into maintenance mode. All of us agree that isn't as interesting. So while everyone feels as though they have learned some useful methodology for picking stocks, and everyone thinks perhaps learning to maintain the portfolio would also be useful, interest is waning.

This is all a bit surreal, because four of the members that remain (myself included) are relatively new - members for six months or less. Plus, due to my outstanding relocation question, I might very well be a departing member next month! I didn't bring up that possibility at this time...

The club is twelve members, and as I mentioned, four are leaving. Actually, that could be five as one more has moved away and doesn't really participate anymore. Plus, if I move away, I would also depart and then only six members would remain - three of those would be newbies. So there is some question about the viability of the club going forward, but we can worry about that later. We decided to run the club for the rest of the year, largely because by operating in January and February, we already have to file taxes for 2005. ;)

The four that are leaving comprise nearly 50% of the club's holdings, so we need to figure out how to pay them out. As President, I'm in charge of floating various proposals, with the goal of having something ironed out by our next meeting so we can approve it. Another motive for me to do this is to see how my leaving will affect the club - very little, as far as the holdings. I haven't been in very long and whatever I invested can be easily paid back out of the cash holdings.

We'll have to sell several holdings to raise the proper cash to pay off the departees. That will be a three step process:

  • Keep a few of the best stocks, get rid of the rest.
  • Transfer entire holdings over to the departing members, and make up difference from our cash position.
  • Transfer stock to remaining members, to stay within the club guideline of no one member owning more than 20% of the club's portfolio.

That club guideline about not holding more than 20% is interesting, as it obviously requires a minimum of five members in the club. The club might very well hit that limit next month! Another longer-term member expressed indifference about whether the club continues, so he might very well want to leave. I suppose that is to be expected, when all of the founders of a club leave, and take a major chunk of the holdings.

So I'll be crunching some numbers in the upcoming days and sending info to our mailing list. Using a spreadsheet I've found various combinations of stocks that add up to roughly 90% of the amount we need to cash each member out - assuming five people depart (including the absentee member), they'll each get transferred two stocks, plus a bit of cash. That will reduce our holdings from 15 stocks to 5 stocks!

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