Investment anomalies?

[Jack]

On 2016.01.18 19:59, aga wrote:
> On 19/01/16 00:41, Jack wrote:
>> On 2016.01.18 18:07, aga wrote:
>>> A few months ago I committed a fix to correct absence or  
>>> mis-labelling of the Price field in investment transactions.  While  
>>> doing some checking, I noticed that a Sell transaction still is  
>>> incorrect and I shall be submitting a fix for this.
>>> 
>>> Also, I've noticed that a Reinvest Income transaction appears to  
>>> require an income category to be specified, although the amount may  
>>> be zero. This doesn't seem right to me, but before I 'fix it', I'd  
>>> appreciate views from other users, who have an opinion on this, as  
>>> I know some have their own particular use of some of the fields,  
>>> which might not be what I would expect.  And, the user is always  
>>> right...
>>> 
>>> Allan
>> 
>> It actually is important.  A dividend reinvestment is a dividend,  
>> where you immediately use the proceeds to buy more shares.  Although  
>> you don't have any cash income (so don't need a brokerage account)  
>> the dividend is income, and reported as such to the tax authority  
>> (at least in the US) so it is important to know what type of income  
>> it is - short or long term capital gains, simple dividends, .....   
>> Also, depending on the type of account it is in, the income may be  
>> taxed this year, or tax deferred (for example in an appropriate  
>> retirement account).
>> 
>> Also note, the income amount is NOT really zero - if it were zero,  
>> then you wouldn't be able to reinvest in more shares.  It's only  
>> that there is zero cash coming in.  Dividend reinvestment is just  
>> shorthand for a dividend and a buy shares.  (As I've complained  
>> before, Merrill Lynch actually finds a way to report it as three  
>> transactions in my monthly statement.  One doesn't import, I delete  
>> one, and convert the dividend to a dividend reinvestment.)
>> 
>> Jack
> 
> OK, Jack, I understand that use.  So far as the category amount is  
> concerned, then, as I see it, that should only ever be zero?   
> Otherwise, it will be added to the value of the extra shares in the  
> total.  Or, can you see a possible need for a non-zero dividend  
> amount?
> Don't you have that strangeness with ML where they just add whole  
> shares, and retain any monetary remainder towards future purchases?   
> Do you account for that, or just leave it to ML?  I suppose you can't  
> really, as you don't get to receive it until it is used to fund the  
> later extra share/s.
> 
> Allan

Two separate issues.  First, I'm not sure we're using the same  
terminology.  They pay a dividend, which needs an assigned income  
category, so it can be properly allocated for tax reasons.  Most  
commonly, all of that amount is used to buy shares, so some number of  
shares get added to the holdings, and there is no cash to be  
transferred to a brokerage account.  I think it's reasonable for a  
Dividend Reinvestment to always be that way - but....

If you have stock options, there are lots of ways of exercising them.   
Assuming the options themselves are not actually tracked in KMM, then I  
see three possibilties: (I'm thinking of how these would optimally be  
recorded in KMM, not how it is done now)
- buy hold - this is really just a buy shares, where the buy price is  
fixed by the option, and is not the actual share value on the day of  
purchase (This actually needs cash from a brokerage account.)
- cash sale - where you get the income from selling the shares.  This  
should really be a combined "buy shares" as above, and then "sell  
shares" at the current market price. (This puts cash into the brokerage  
account.)
- combinations - where you buy all the shares (at the option price),  
but then sell some of them at market price.  Most commonly, you sell  
exactly enough to pay for the purchase - in which case there is zero  
cash to/from the brokerage account, but some shares actually added.   
However, you could buy more or less - leading to cash out or in from  
the brokerage account.

I don't know whether these are really relevant to the current  
conversation - since they can always be handled as a combination of buy  
and sell, in the same way a Dividend Reinvestment could be handled buy  
the combination of two transactions.  The advantage of a single  
transaction just simplifies the bookkeeping. (for the human, not  
necessarily for the program.)

Second issue - on the surface, ML does pretend to track whole shares  
only, with the occasional transaction (I've forgotten the term they  
use, and don't have time to go digging into a statement right now)  
where they add or remove a single share.  I used to try to do it that  
way in KMM.  However, there really is enough information in all the  
buy/sell/div-reinvest transactions to track shares at fractional  
amounts (often to four decimal places) and they actually do report that  
partial amount in the holdings list in the monthly statement.  The  
month I converted to actually tracking too some "creative"  
transactions, but now it's much easier to know what I actually have.

Jack