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SEC Modernizes the Accredited Investor Definition

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Re: SEC Modernizes the Accredited Investor Definition

#71

Post by georgeecollins »

nickpinkston wrote: post #60
georgeecollins wrote: post #51

Earlier quoted context omitted.

>> There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's…

No, it's still easy for any asshole to get a margin or options account and lose a ton of money. Here's a recent news story: "20-Year-Old Robinhood Customer Dies By Suicide After Seeing A $730,000 Negative Balance" https://www.forbes.com/sites/sergeiklebnikov/2020/06/17/20-y...

I didn't say it is impossible. It's just relatively rare. The point of the SEC is not prevent anyone from doing something stupid and losing a lot of money. The point is to keep lots of people from doing something stupid. And in particular, to keep lots of people from doing the same stupid thing at the same time! (1929, 2008.. )

Re: SEC Modernizes the Accredited Investor Definition

#72

Post by nickpinkston »

gojomo wrote: post #46
Lazare wrote: post #10

Earlier quoted context omitted.

In theory, the SEC could decide to count those. In practice, that's basically unthinkable.

It's been discussed, so it's definitely thinkable. And if getting an accredited-institution MBA, for tuition payments of anywhere from $22K to $200K, after about 17 years of other education (K-12, undergrad) isn't enough for someone to protect their own wealth from scams, what's the point of all that credentialing, anyway?

Fully agree - though I bet it doesn't help that much TBH.

Re: SEC Modernizes the Accredited Investor Definition

#73

Post by georgeecollins »

nickpinkston wrote: post #61
georgeecollins wrote: post #51

Earlier quoted context omitted.

>> There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's…

There are even leveraged ETFs for those without margin accounts: https://www.investopedia.com/terms/l/leveraged-etf.asp

Yes, but those ETFs are professionally managed high leverage accounts. It's not your uncle day trading at 10:1 margin.

And I know your uncle can probably find a way to make a crazy risky investment. The idea is just to try and cut down on that to avoid systemic risk.

Re: SEC Modernizes the Accredited Investor Definition

#74

Post by chrisco255 »

refurb wrote: post #29
tboyd47 wrote: post #22

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough…

like the most anti-free-market law I've ever heard of Do you know why the SEC created these rules? If you understand the history it makes a lot of sense.

The world is quite a different place in 2020 than in 1933. We have access to unlimited digital forms of risk to speculate on as it is. It used to be seen as necessary to have taxi licenses in order to have trusted drivers who wouldn't scam out-of-towners. It turns out you can replace all that regulation with an online review system plus mobile GPS and payment app (Uber / Lyft). Similar innovations are being held back in securities because of red tape.

Re: SEC Modernizes the Accredited Investor Definition

#75

Post by thursday0987 »

nokcha wrote: post #63
tptacek wrote: post #50

Earlier quoted context omitted.

Is there a variant of this framing that doesn't also argue against all securities regulation and a return to the status quo ante of the Great Depression? Because the Accredited Investor standard essentially bypasses securities disclosure laws. Without it, every company would obtain the benefits of being public company, with none of the associated obligations.

How about a knowledge/skills test instead of a wealth test? Something like the bar exam, but for investing instead of law. That would keep out people who have no idea what they're doing, without unfairly keeping out knowledgeable middle-class citizens.

did you even read the SEC announcement? it is literally the first bullet point:

* add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order. In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons.

Re: SEC Modernizes the Accredited Investor Definition

#76

Post by chrisco255 »

airza wrote: post #34
tboyd47 wrote: post #22

The accredited investor restriction on private equity seems like the most anti-free-market law I've ever heard of. You're not allowed to put your own money into a business unless the government deems you Smart Enough (c) (tm) to do so. If the vast majority of citizens here are not smart enough to invest our own money, then what is all the higher education for? This change sounds like a good one but there's not enough…

I guess i would refer you to the brief period of time where cryptocurrencies were skirting these regulations. I'm sympathetic to the argument that there was some value created there, but hoo boy , a lot of people lost a considerable portion of their life savings there.

A lot of people have gotten life-changingly rich from crypto investments. Bitcoin is already the best performing asset class of all time, and has minted plenty of millionaires.

Re: SEC Modernizes the Accredited Investor Definition

#77

Post by chrisco255 »

tboyd47 wrote: post #58
airstrike wrote: post #37

Earlier quoted context omitted.

> then what is all the higher education for? How exactly does a PhD in Biology help you understand investments?

Perhaps it doesn't, but that's the point. Education should prepare you to engage with society gainfully. If one makes it through 20 years of rigorous school but at no point acquired the necessary cognitive skills to discern scams from legitimate opportunities, then the education itself is the scam.

Yeah, financial education should be considered a standard subject and taught all years of high school and all degrees, in my opinion. Far more important and practical than almost any other basic subject. Even more important than trying to teach everyone to code. Teach everyone how the financial systems work and principles of personal finance.

Re: SEC Modernizes the Accredited Investor Definition

#78

Post by gojomo »

georgeecollins wrote: post #51
gojomo wrote: post #36

These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…

>> There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. That is an exageration for publicly traded securities. It used to be possible (in the roaring '20s) to be 10:1 leveraged in public stocks. The SEC forbid that because so many people were wiped out. Nowadays retail stock accounts can under-perform, but it's…

You can trade futures, even in many retirement accounts, sometimes with just a few thousand dollars in the account. Such futures can wipe out any amount of principal in as little time as you could wire money to a sketchy private investment.

Many of the people defending these 1930s-style regulations, as if these regs truly protected people from themselves, seem to also be stuck in a mid-20th-century view of what the investment & informational environment is like.

If someone is truly gullible & risk-seeking, any amount of capital can be destroyed in any number of legally-approved investments/gambles, almost instantly. The 'Accredited Investor' rules just lock the less-wealthy out of one small and not even especially risky corner - a place where the less-wealthy could potentially better-deploy local knowledge. So this old rule is now just paternalistic friction, without any real personal or systemic wealth protection.

Re: SEC Modernizes the Accredited Investor Definition

#79

Post by elliekelly »

gojomo wrote: post #46
Lazare wrote: post #10

Earlier quoted context omitted.

In theory, the SEC could decide to count those. In practice, that's basically unthinkable.

It's been discussed, so it's definitely thinkable. And if getting an accredited-institution MBA, for tuition payments of anywhere from $22K to $200K, after about 17 years of other education (K-12, undergrad) isn't enough for someone to protect their own wealth from scams, what's the point of all that credentialing, anyway?

Given the state of student loans in the US I think there could be a fairly compelling argument that an MBA is indicative of a person’s inability to protect their wealth. Not all MBAs are created equal. Most of them aren’t worth the price and the few that are worth it have a lot more to do with the network and connections than the education.

Re: SEC Modernizes the Accredited Investor Definition

#80

Post by colordrops »

mywittyname wrote: post #62
gojomo wrote: post #36

These are good steps, but abolishing all wealth-tests entirely would still be better. There's no wealth-test that prevents a person from losing all their money in highly-leveraged investments - from real-estate to fancy public-market securities. (Over-leveraging into real estate is practically encouraged by public policy.) There's no wealth test against putting all one's cash into gambling, which can be arbitrarily w…

There's a strong financial incentive for the market to engage in fraudulent activities against investors. And the smaller the investor, the greater then incentive. Public companies have regulations that help prevent such fraud by requiring things such as audits by third party accounting firms, and regulating how these audits may be performed. Such regulations came about specifically as the result of fraud committed b…

It's a matter of principle though. You don't restrict the freedom of individuals to protect them from other individuals that are bad actors. You go hard and strong after the bad actors. What other examples of laws outside of finance can you cite where individuals are restricted in order to protect them from other bad actors? It's absurd and not in the scope of what government should be doing.
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