How would I do this?

Discussion in 'Professional Trading' started by cashmoney69, Nov 23, 2006.

  1. My cousin is going to give me about 5-8 thousand dollars to put into my trading account for an investment idea we both have.

    For those of you on here who "manage" money for friends/ family, maybe you can answer these questions.

    1. Should I just throw his money into my account and have some kind of written contract between the two of us. ? this would be the easiest thing to do, but I don't really like the idea of mixing his funds with mine.

    2. If I create another account, should it be a partnership or LLC?

    3. Is this legal ?

    my biggest question

    4. How do money managers divide profits among their investors?
    say for example:

    family member 1 gives 50,000
    family member 2 gives 5,000
    family member 3 gives 100,000

    and I have around 32,000, a total of 187,000.00 (not including margin)

    now say for example I wanted to buy 1,000 shares of yhoo at 25.00. Each person would get an equal 250 shares at a cost of 6,250.00 per person. What happens if someone's portfolio cant afford the number of shares the manager wants to buy?...

    How are profits divided when the times comes?

  2. Just figure out a weighted ratio for each member based on their contribution total in terms of how much of a % it is for the total pot, which in your scenario was $187K

    So Family member # 3 would have the biggest ratio/share which would be something like 53.5%, followed by member # 1 roughly 26.5%, than yourself at 17%, and lastly member # 2 with 3%ish

    If you bought 1000 shares of YHOO at $25 and it went up to lets say $31, which would be a stellar $6 gain and you sold it, you would take that $6K total profit and just divide it up by the percentage weighted ratios for each member to calculate their "cut"
  3. ryank


  4. 4re


    I know this doesn't answer your question but coming from a business background as well as trading I would like to say this. Mixing business (even trading) with family or friend relationships is even more risky than trading itself. Make sure to ask yourself if this is a relationship you can afford to lose before entering into it.

    Good luck,
  5. WarEagle

    WarEagle Moderator

    This is the absolute best advice you will get on this thread. The problem is that most people in your position will never take it because they think that there is no way they will lose money. If you choose to do it, just remember:

    family member 3 gives 100,000 - he was wealthy enough to survive the wipeout, but you will always feel uncomfortable around him and never be able to look him in the eye at Christmas

    family member 1 gives 50,000 - no longer talks to you because he will have to work until age 75 to get the 401k he drained back to a level he can retire on

    family member 2 gives 5,000 - the 5k was his 3k life savings plus the 2k he took on a credit card advance... he no longer talks to you either, but its because even after he gets out of prison for poisoning your dog there is a restraining order keeping him from getting within 100 yards of your property. Of course, there will be the large signs he erected in the empty lot across the street that tell everyone your parents were never married.
  6. I understand what you guys have said, however unlike most family ventures, this would only be done if everyone signed a contract saying that they understand the risk, and that they could lose EVERYTHING

    Maybe if they just gave 1,000..something small, then they wouldn't be so bitter if I lost it all, and it wouldn't destroy their life.
  7. 4re


    The problem I am referring to isn't just on the loss side it also goes for the winning side of it as well. Greed is another factor. Lets say you do build up a sizable account then all of a sudden other people want more than they deserve.

    Even if there is a contract and all the legal matters are black and white. Then someone challenges this contract. You take it court and win. Do you think that relationship will be solid?

    I am just pointing this out because I have had business partners in the past. All was rosey for a while. But all have failed in one way or the other. My business success came about when I went at it alone.

    Just want you to be aware that this is how the majority of business relationships end. I have never and will never do business with a relative.
  8. GGSAE


    I'm not trying to sound like a dick but wasn't it just a few weeks back you seemed to be losing sleep over your trading because you felt it wasn't as good as it could be?

    Is it really critical that you need this additional investment...?

    i just want to make sure you're prepared (in your trading and personal life) to handle this responsibility.
  9. CM - even a perfectly crafted legal document by attorneys specializing in family businesses can STILL create issues later. NO legal document is 100% bulletproof, especially if not done properly.

    If you decide to go forward with this, YOU need to pay an attorney to draft the documents properly, not something you throw together on Word. This of course will cost you money - and not 50 bucks.

    As for this 'idea' you guys have, if you really want it critiqued, post it on the forum. If you are going to give it a shot b/c it's someone else's money, good luck. I would be a bit nervous to test an 'idea' out with real money.
  10. Just wondering!..what's a resonable %'age for a money manager?


    I got to make those car payments somehow :D lol

    #10     Nov 26, 2006