The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

A Crack In The Dam ?

11/18/2019

Normal or “retail” investors are not permitted to invest in some of the most profitable/risky opportunities.  Those opportunities are normally referred to as private placements and were limited to investors with a net worth (excluding home value) of $1 million or annual income above $200 thousand ($300K for couples).  These investors are called Accredited Investors.  With the current bull run in the stock market, more investors will meet the minimum, and market analysts expect increased demand for private placement, which they believe will be good for the economy.  But advisors are understandably reluctant to show such opportunities to these newly qualified Accredited Investors.  The primary reason is the “old boy network” of the best opportunities.  Really good opportunities are hard to find and even harder to analyze. While I’m an Accredited Investor, I still avoid private placements, except real estate.

A new bill has been introduced into Congress adding individuals with special or professional expertise to become accredited investors, without meeting the net worth or income requirement.  A college professor of finance or an engineer with specialized engineering expertise might meet the test.   That’s logical and probably good for the economy.  However, it is only the first crack in the dam protecting retail investors.  The SEC is now considering another change that will allow ALL retail investors to invest in private placements.  That would be a disaster!  It would unleash a tsunami of barely understandable investments on innocent investors.  Let’s hope Congress remains useless and doesn’t fix what is not broken.

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