Capital Gainz - Newsletter #4

             Capital Gainz Newsletter #4
                  October 6, 1998
                     Dave Cohen
                  AlleyCat Software
In these newsletters, I'll provide useful hints and tips for
Capital Gainz. To make things easy for email, these 
newsletters will be plain old  ASCII text.

If you want to be removed from the mailing list, send me a 
request via email.


 1) Version 6.0 Schedule
 2) Customizing Security Table
 3) 1998 Tax Holding Periods
 4) Cash Types in v6.0
 5) Recording Options
 6) Mergers and Spinoffs
 7) Price Sources...Again
 8) Advertising
 9) Interested in Web Development?


1) Version 6.0 Schedule

Beta testing of Capital Gainz 6.0 has been underway
for about a month now. I'm working through reported
problems, and expect a final release in November or
December. Many of the remaining problems are related
to the development environment, and I'm begging them
get their act together.

If you are interested in being a Beta tester, all I ask
is that you use the Beta version regularly and report all
problems as quickly as possible. The Beta version is pretty
solid - I've been using it for a couple of months.

Capital Gainz 6.0 Beta information is available at:

Please note:
  - You need to request a new username/usercode after
    downloading the Beta version
  - You need Windows 95/98/NT, Windows 3.1 will not work
  - The most recent version has a bug that requires you
    to turn on the Show Fraction Table option in
    Config/User Settings


2) Customizing Security Table

The main table in Capital Gainz, the Local Security Table,
shows the following data, in order:
  - Symbol
  - Name
  - Shares
  - Value
  - Gain/Loss
  - Current Price
  - Average Price
  - Yield
  - Amount
  - Commission

You can't display all of the items at once (at least at
up to 1024x768 screen resolution), so must scroll right to
view some information.

The order of this table is based on what I thought was 
most important. However, Amount, Average Price, or Yield 
might be very important to you - important enough that 
you'd like to see it early in the table. Also, you may
not need to see the security Name - you'd prefer it be
pushed to the end, or even omitted.

Well, you can order the table based on your preferences
using the Securities/Set Table Order function. This
function presents you with an ordered list of 10
fields. For each field, you select the data item you
want to see in that slot. Thus, you can choose to 
display the table in an order such as:
  - Symbol
  - Gain/Loss
  - Yield
  - Current Price
  - Average Price
  - Amount
  - Value
  - Shares
  - Commission
  - Name


3) 1998 Tax Holding Periods

The latest version of Capital Gainz, 5.2G, will print the 
Tax Schedule Report based on 12 month long/short term
capital gains holding periods. This is the holding period
de jour for the IRS.

I have heard that there will also be an even lower rate
for 5 year holdings, but I could not verify that this
was confirmed on the IRS site. When it is confirmed, I'll
add support in Capital Gainz.

Current Capital Gainz 5.2 users can download the latest
update from our Web site at no cost. If you need disks,
it's a $20 charge. Registered users of prior versions of
Capital Gainz can upgrade to 5.2 for $25 - add $5 if you
want diskettes sent.

Incidentally, Capital Gainz now uses internal logic to
determine holding periods for a given tax year. It used
to have a Long Term Holding Period user setting that was
used to flag sales as long or short term at the time the
sale was recorded. However, the silly 3-tiered holding
period in 1997 blew this idea (which I thought was nice
and flexible) out of the water. So, Capital Gainz uses
internal tables now - if you try to generate a Tax 
Schedule Report for a future year, the program assumes
a 12 month holding period.


4) Cash Types in v6.0

I've heard good things from Beta testers about the new Cash 
Type in Capital Gainz 6.0. Personally, I like it much
better as well. 

Capital Gainz 6.0 will let you define a security as a Cash 
Asset Type. This means the security has a fixed price of
$1, and Shares always equals Amount. Recording a purchase
or sale only requires entry of the date and the amount.
But the greatest advantage is in reconciling transactions.
No, I haven't added checkbook features to Capital Gainz
(and never will). Rather, purchases of Cash Types are not
'converted' to Sold Shares when shares are sold. 

For example, if you had:
  1/1/98 Buy  $100
  2/1/98 Buy  $100
  3/1/98 Buy  $100
Capital Gainz would record 3 Buy Shares Records:
  1/1/98 $100
  2/1/98 $100
  3/1/98 $100
If you sold $150 on 4/1/98, Capital Gainz would convert
1 Sell Shares Record:
  4/1/98 $150
but also convert some of the Buy Shares Records,
leaving you with:
  2/1/98 Buy  $50
  3/1/98 Buy  $100
This worked fine, until you had to go back and adjust
something. Then, it was difficult to find and change the 
appropriate records, even with the Activity History Report
in hand. The only way to get it exactly right involved
deleting/unselling some Sell Shares Records. Not a very
fun process.

With Capital Gainz 6.0, using the above scenario, after 
recording the 4/1/98 sale you would have 3 Buy Shares 
  1/1/98 $100
  2/1/98 $100
  3/1/98 $100
and 1 Sell Shares Record:
  4/1/98 $150
As you can see, fixing or adjusting cash accounts is much,
much easier with 6.0, since Buy Shares Records do not
get converted to Sell Shares Records.

This approach is only possible because we know:
- Sales cover purchases first-in/first-out
- There is a constant $1 price
- There are no gains or losses

In fact, all buy, sell, and distribution activity is
presented in a single chronological activity table for
Cash Types. Thus, you can modify any type of activity
for a Cash Type from a single table.

Two important points to keep in mind about the new
Cash Type:
- You can convert existing securities, such as money
  market accounts, to Cash Types.
- Cash Accounts for portfolios can only use Cash Type
So, if you have a Cash Account for a portfolio, the 
Capital Gainz 6.0 installation process will inform you 
that you need to convert the security to a Cash Type,
then reset the portfolio's Cash Account.

The Cash Type concept was one of those ideas that I
wished I'd figured out a long time ago. Very early 
in Capital Gainz history, I didn't see users tracking
money market accounts - that's what checkbook managers
like Quicken were for. Then, as I saw users doing this
regularly, I assumed that using a plain security with
a $1 price would work fine. It sort of did - until it
came time for inevitable adjustments to active accounts.
Then, management became difficult - I found this out
first hand when I started tracking my own money market
accounts in Capital Gainz.


5) Recording Options

Capital Gainz 6.0 will not include inherent support for
options. Since Capital Gainz handles all kinds of issues
such as tax treatment, I've been struggling with how to
handle convered options, straddles, and other such stuff.
It ain't easy.

However, there's no reason you can't record options in
Capital Gainz now. Treat the option as a security - 
separate from the underlying stock, of course. For
instance, if you own Microsoft, you would have an
MSFT security. If you sold 10/97 140 call options, 
you'd also have an MSQJY security - the option symbol
for Microsoft 10/97 140 calls. 

The opening activity for options would be:
  - Buy a call : record a purchase
  - Buy a put  : record a purchase
  - Sell a call: record a short sale
  - Sell a put : record a short sale
The closing activity for options would be:
  - Sell long call: record a sale
  - Expire long call: record a sale at $0 
  - Cover short call: record short sale cover
  - Expire short call: record short sale cover at $0
  - Exercise long call: Delete the option purchase,
      record the stock purchase and add the option
      premium to the amount or the commission
  - Sell long put: record a sale
  - Expire long put: record a sale at $0
  - Cover short put: record short sale cover
  - Expire short put: record short sale cover at $0
  - Exercise long put: Delete the option purchase,
      record the stock sale and subtract the option
      premium from the amount or add it to the 
Hint: To record a buy or sale at $0, uncheck the AutoCalc
      checkbox on the Buy/Sell Form. Be sure to recheck it
      next time through, so values are calculated 

What's missing? Well, I'm not real clear on tax 
implications. For instance, I believe I read somewhere
that if you sell a covered call, you 'restart' the
holding period on the underlying stock. I may be wrong
about that, but I've got a lot of reading up to do.
And, understanding the tax codes is an art, not a

If there are any experienced option players out there,
I'd much appreciate you checking my logic above. Also,
pipe up so I can call on you in the future! I've only
dabbled a bit with options, enough to break even on 'em
and decide they weren't for me.


6) Mergers and Spinoffs

Capital Gainz handles mergers and spinoffs via the
Securities/Convert Security Option. It's not simple,
becuase the underlying merger/spinoff process is not

Rules before you try recording a merger/spinoff:
- Before trying to record a merger/spinoff, backup
  your data in case you make a mistake.
- If a security is converted into a different security -
  such as with a merger or with one mutual fund becoming
  a new mutual fund - it's often easier to just change 
  the security symbols and the name. If the share price 
  is converted, just use the Price Split function to 
  adjust prices and shares.
- Set up the new local and global securities.
- Understand the paperwork that you get! It's confusing at
  first, but try to work through the examples the company
  should provide. Important figures are:
  - % of values spunoff 
    (varies for spinoffs, always 100% for mergers)
  - ratio of old shares to new shares
- Work through the examples in the Capital Gainz Help,
  under Securities/Convert Local Security.

It's tempting to ignore all the complicated math and just 
record a sale of the old security and a purchase of a new
one. However, in Capital Gainz, this will result in a 
taxable event. You need to retain the original holding
periods and basis. If you only have one or two purchases
to deal with, you can choose to convert them manually,
changing or deleting the old purchases and recording 
the purchases of the new security.

Mergers are pretty straightforward, as 100% of the value
is converted. For instance, say you have 200 shares of
a stock that is now worth $2000. The stock is bought
by another company, and you get 1 share of new stock for
every share of old stock you had. You would:
  - Define the new local and global securities
  - Record the Security Conversion:
      100% of the purchase amount is converted
        (This may be more or less than the dollar amount
         converted, since purchase amount refers to how
         much you paid, not the current value!)
      The conversion ratio is from 2 to 1
         (For every 2 shares you had, you get 1 share.)
Capital Gainz removes existing purchase records and adds
the new ones accordingly.

Spinoffs are more complex, since 100% of the value is not
converted. For instance, say you have 100 shares of a stock
that is now worth $1000. 20% of the company is spunoff into
a new company, and you get 2 shares of the new company for
each share of stock you own. You would:
  - Define the new local and global securities
  - Record the Security Conversion:
      20% of the purchase amount is converted
        (This may be more or less than the dollar amount
         converted, since purchase amount refers to how
         much you paid, not the current value!)
      The conversion ratio is from 1 to 2
         (For every 1 share you had, you get 2 shares.)
Capital Gainz changes existing purchase records and adds
the new ones accordingly.

Note the distinct difference in the above discussions 
between the value and the purchase amount. For instance,
in the spinoff example, the 100 shares may have only
cost $700, but are worth $1000. In Capital Gainz, the
20% spinoff would apply to 20% of the purchase amount,
or $700 * .20 = $140. The value, on the other hand, 
varies depending on the price of the security.


7) Price Sources...Again

The most common request I get is where to get prices on
the Internet, and how to get read those prices into 
Capital Gainz. In a previous newsletter, I wrote about
various sources based on user feedback. Since then, I 
visited a variety of the sites and tried out as many
of the services as I could. I wrote down the steps I took
to set up and use the service, and will include this in
Capital Gainz 6.0's help files. However, there's no need
to wait - go to our Web site and check out the new pages
that discuss how to get and use prices from InfoBeat, 
IRNet, Yahoo, and

Many services let you set up an account so that the prices
are automatically emailed to you at the end of the day.
This is really convenient, since there's no need to go
to a Web site everyday and manually request prices. 

I personally use However, it's a fee-based
service, while the others are free. I use it for 2 reasons:
  Inertia - I've had it for a long time, before the
            others came around, and it's worked fine.
  Discount- My ISP account offered basic
            service free for 1 year, and after that is
            is discounted at $3/mo (normally $9.95/mo).

From user feedback, I'd recommend the following if you are
just looking into using a price service:
  If you want prices emailed - InfoBeat
  If you want to go to a site and get prices - IRNet


8) Advertising

Anyone out there with experience in putting advertising
on a Web site? I'd like to generate a little extra income
by adding annoying...err, informative advertising banners
on my Web site. I've checked out some Web advertising
companies, and I've found that you can do OK if your site
has thousands of hits per week, but advertising companies 
willing to talk to lower volume sites don't have very
robust client lists. (One that I checked out had 5 finance-
related banners to rotate - 3 were for the same company,
and one was for a money-making MLM.)

Incidentally, Capital Gainz v6.0 will probably have 
advertising banners built into the program. Don't worry, 
though - these will be present only in the Evaluation
version. (If a registered user really wants to see ads,
then they will be able to set an option to do so.)


9) Interested in Web Development?

No, I'm not hiring. But, on a non-investment topic,
some of you may be interested in pursuing Web
Web development employment. Based on my experience 
with recent projects, I suggest focusing on these
technologies and products (I'll assume HTML know-how):

  MS Internet Information Server - this Web server
    is free with Windows NT, and based on Microsoft's
    track record, will be the most popular soon.
    Yes, Netscape sells one, and yes, the press loves
    O'Reilly's WebSite. But they don't have the 
    marketing clout. (Remember the Mosaic Web Browser?)

  Windows NT - I worked on Unix, and Unix is still 
    more powerful and significantly more stable than
    NT. But, we're talking about Microsoft here. Plus,
    major Unix players, outside of Sun, are in 
    disarray or deemphasizing the product (see IBM).

  MS Active Server Pages - This is a great Web server
    tool, MUCH easier and faster than using Java to 
    develop Web-based applications. MS Visual InterDev
    is the product that rolls ASP up into a nice neat
    development environment. (Get this: I DO NOT like

  MS FrontPage - I don't love it, but it is the Web page
    development tool that always seems to set the standard.
    Incidentally, a version of it comes with Visual 

  MS Access - Ok, it's not great or very scalable. But
    it comes with MS Office, and you can combine it with
    Visual InterDev to build some powerful interactive
    Web applications. And, since the Web interface to 
    Access is via SQL, you can always scale up to
    a big money database like Oracle or SQL Server when
    you get a deep-pocketed client.