Arbitration and The Green Machine
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I bought my first share in 1996, and paid 26,400 for it. Your numbers are, in fact, incorrect.
You are right, you didn't pay for the OPTION to buy the stock, but had you chosen to excerise your option, you would have PAID for them at a predetermined price set by your company. If the company goes belly-up, what exactly are your options worth? Likewise, at Jones, some are given the optionto buy into LP. That option is free. However, excerising said option will cost you money at an amount set by Jones (or any other partnership). [/quote] That is true Chad,however, when you are offered LP you HAVE to exercise in order to have LP ..... When you are given options you can choose to exercise them whenever you see fit...... That's a big difference.[quote=noggin]As a Jones person who worked for a S & P 500 company before Jones, I can tell you that I recieved stock options and I didn’t pay a dime for them.
You are right, you didn't pay for the OPTION to buy the stock, but had you chosen to excerise your option, you would have PAID for them at a predetermined price set by your company.[/quote] Not necessarily...ever hear of a cashless option exercise?[quote=noggin]As a Jones person who worked for a S & P 500 company before Jones, I can tell you that I recieved stock options and I didn’t pay a dime for them.
[quote=joedabrkr] [quote=munytalks]FOOD FOR THOUGHT:
If I own $30,000 worth of BRK B or any other stock for that matter, I have paid for it and can sell any day the market is open. If I die, my heirs can keep it or sell with a step-up in cost basis. If I am 'offered' $30,000 worth of EDJ LP- it is a DEBT. I OWE Edward Jones $30,000. I cannot sell it anytime I want- nor can my heirs keep it or sell it. AND think about this: If I am 'offered' $30,000 worth of LP and Jones goes belly up- I will still have to PAY the $30,000 to the General Partners- General Partners have EQUITY Partnership in the firm. Limited Partnership is a DEBT TO THE FIRM. You DON'T OWN IT. I would still OWE the General Partners AND I wouldn't have a job anymore. [/quote]As a point of fact ownership of an LP interest is EQUITY. If the LP owner borrows to make the purchase, that is a separate issue entirely.
[/quote] Joe- This topic came up because it was a HUGE point of interest in my Arbitration case. There were two General Partners representing Edward Jones. This is how it was explained - Under Oath- with Penalty of Perjury- and recorded on tape...... "General Partnership is EQUITY OWNERSHIP- Limited Partnership is DEBT OWED TO THE FIRM. When the amount of L P offered is paid for it is merely a PAID DEBT to the firm- which is returned upon certain 'triggering' events. The FIRM has the option of calling in all Un-paid DEBT under certain circumstances." Are the General Partners not correct or were they lying?
…let’s just say that it doesn’t appear there are any CPAs among the general partners…I’ve never heard of a limited partnership interest referred to as debt.
Joe-
If it were an equity, wouldn't one receive the value if it could be redeemed at the market. There isn't one, and in fact Munytalks is right on this one. Indyone says he has never seen a LP interest considered a debt. No the LP Jones offers is offering is a equity if you are hallucinating. The only thing that changes is the income. Before Spiff comes to the GP's rescue, it does pay at least 7.5% and usually higher, but there is absolutely no movement on the value ever for the LP. Think of it this way.... EDJ GP's sold their "income interest" back to Hartford when the revenue sharing disclosures were required two years ago for $70M. Does anyone in their collective right minds think they paid 70M to offer consultative services? Nah...they are too cheap to sell an equity to their reps....but I'll bet they paid pennies (if anything) for that 10% ownership with Hartfornd and when the regulator's noose was getting tight they sold their interest back to Hartford for exactly what they paid for it. Yeah right. Only the reps are stupid enough to buy that crap. Jones LP is a debt in drag.Okay-
THIS may help you guys understand LP versus GP. Get out your INVESTMENT PYRAMID. Get your color markers.... on ONE side of the Pyramid we have LOAN investments... on the other side we have OWN investments...... STOCK/ Mutual Funds that invest in Stock and Variable Annuities are on the OWN side- because when you invest/buy them you OWN a part of the underlying company. CD's/Fixed Annuities and BONDS are on the LOAN side because when you invest/buy one of those you are LENDING the underlying company money.... Now this is taught in KYC class to every new IR/FA - AGREED? GOOD..... IF you don't have the money to BUY a bond outright, but you have agreed to buy that bond.... (ie LIMITED PARTNERSHIP OFFERING) you OWE the underlying company the money you agreed to LEND. YES or NO? STOCK AKA EQUITY is OWNERSHIP...... BONDS AKA DEBT IS LOANERSHIP... You don't own equity in a company when you own a bond.... Remeber from KYC- If you own EQUITY/STOCK in a company and that company does really, really well - YOU do well because you OWN a piece of it. With a DEBT/BOND you are only guarenteed a certain rate of return and hopefully the return of your capital..... You Don't Own Jack Dang Diddly Dong.You are right, you didn't pay for the OPTION to buy the stock, but had you chosen to excerise your option, you would have PAID for them at a predetermined price set by your company.[/quote] Not necessarily...ever hear of a cashless option exercise?[/quote] If you have an option for 100 shares at $5 and the stock is at $10, then you have an equity position of $500. In a cashless option exercise, you may simply walk with 50 shares of $10 (less fees) and not "pay" any cash up front. You can then buy another 50 shares at $10 on your own and have exactly what you would had you simply exercised your option. Point being, you certainly paid for them. They weren't given to you, which is the impression I had from his post.[quote=chaz][quote=noggin]As a Jones person who worked for a S & P 500 company before Jones, I can tell you that I recieved stock options and I didn’t pay a dime for them.
It is debt, but it is debt owed to the LP, NOT debt owed to the firm. It is equity that behaves more like a preferred stock. But you can’t compare it to any other ownership structure, GP, LP, and SLP ALL have mandatory redemption policies. It is callable upon certain triggering events. The only reason the value does not move, is that it is not public or marketable. This is how most private LP’s work. GP shares do not change in value either (except the fact that a certain amount of GP earnings are retained, instead of paid out, so by virtue of this, their shares will increase in value - essentially they are reinvesting dividends at PAR)
Now, GP shares are treated EXACTLY the same for accounting purposes as LP and SLP. All three are considered partnership capital, subject to mandatory redemption. To satisfy SFAS 150, they are all treated as liabilities TO THE PARTNERS, not debts owed to the firm. Bottom line, it is limited partner interest, like many, many other limited partnerships. Call it what you want, but it really is just a very, very high yielding bond (like an average 25% return over the past 30 years). And GP and SLP returns are subordinate to the 7.5% LP guaranteed return. This is contractual, it's in the 10Q's. It's about as good as we are going to get. We can take it or leave it. Hopefully, we can all move on now.And incidentally, if I were to put this on the “pyramid”, I would classify it as “aggressive income”. Although with a solid 30 year track record, and no return less than 15% during those 30 years, it’s a pretty solid investment for part of one’s income portfolio.
It’s still not as good as shares of BRK…no volunteering, no taxes until the sale (and capital gains at that), liquidity, better return and in the end, all one has to do to get it is to pay for it.
I honestly don't know, or care, whether my LP is a debt or equity investment. I can see both sides of the coin. On one side, I loaned my money to the firm in return for a guaranteed interest rate. On the other, I bought into the firm, they guaranteed a specific rate of return, but I have the ability to realize a much greater return than is guaranteed. At the end of the day, it doesn't really matter.
muny - the only thing wrong with your own/loan scenario is that LPs never owe EDJ anything. When you sign the loan paperwork it specifically states that EDJ is not loaning the money. It is a loan agreement between US Bank and the borrower. It's not a loan from EDJ. That would defeat the purpose of using the LP to raise working capital. I might not own Jack Dang Diddly Dong, but as long as what I don't own keeps paying me what it is, I don't care. I'll say it again, the only people I've ever heard complain about the LP are those who don't have any. Philo - My apologies. My numbers were incorrect. I'm going to guess that you bought your share in June of 1996. If that guess is correct, you have posted some outstanding average returns since that original investment. About 13.6% in fact. Not to shabby. In 5 years since 1996 you would have had better returns than the Jones LP. Two of those years were substantially higher (1997 at 34.9% and 1998 at 52.7%). But you've had 5 years that were substantally lower. Two of them in fact were negative (1999 at -19.86% and 2002 at -3.77%). I recalculated the Jones LP return for the same time period. 22.9%. No negative years. Now, you have some flexibility with your BRK A that I don't with my LP. But, please, stop saying that your BRK A has substantially outperformed the Jones LP. Cause you're just plain wrong. BTW, my numbers came from Morningstar. So, if they're wrong, were all screwed.Spiff, my numbers come from taking money out of my pocket and buying the stock. I paid $26,400 for my first share and the current price is in the neighborhood of $143,500 roughly 12 years later. And I haven’t paid a dime in taxes as yet because of it. You can’t make the same claim for your LP.
Therein endeth the lesson.
OK, fine. You win. BRK is better than Jones LP. You are a much better investor than I am. I only hope I can be as smart as you someday.
OK…think about it this way…anyone with the means can buy BRK.
But the Jones LP "bond" is only offered on a discretionary basis..it takes years of hard work and lots of volunteering to even be offered it.. Fact is, most of us on this thread arguing about it, are not LP'sOK, fine. You win. BRK is better than Jones LP. You are a much better investor than I am. I only hope I can be as smart as you someday.
Not likely. Here's a tip, though; Money goes where it's treated best.
[quote=Broker7]OK…think about it this way…anyone with the means can buy BRK.
But the Jones LP "bond" is only offered on a discretionary basis..it takes years of hard work and lots of volunteering to even be offered it.. Fact is, most of us on this thread arguing about it, are not LP's[/quote] You're right. I may be the only one on this particular thread who actually owns any LP. As an owner I have two complaints. One, I can't buy more whenever I want. Two, I can't compound my returns. Neither of those is fixable, so it really is a moot point. But to argue that an investment in Stock XYZ is better than my LP is really an apples to oranges discussion. However, it's a fun little debate.