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That quote is slightly misstated. It makes it sound like gold bars would be securities (since any profit from reselling gold would be "largely or wholly outside
by motbob 9y ago
That quote is slightly misstated. It makes it sound like gold bars would be securities (since any profit from reselling gold would be "largely or wholly outside of the investor's control" since the market for gold is so large and relatively volatile).
Rather than asking whether the potential profit is outside of the investor's control, the question is whether the profit is within the control of some other person or group.
The example that sticks in my mind is the idea that fruit trees can be securities if they are maintained and harvested by non-investors and the fruit sale profits go to the investors.
- jdmichal 9y agoThe fruit tree itself would not be the security. It's the thing which gives the investors the right to their share of profits which would be the security. Or, in other words, a security secures your right of ownership to something else. In a company, we typically call those things "shares". You either own the tree directly, or you hold a security which secures your right of ownership of the tree. So, if you own gold, you don't own a security. You own the actual gold, and that chunk of metal does not secure ownership of any other item. It can be exchanged, of course, for ownership of something else, but that's a function of its value as an object. Now, if you own a share of a gold ETF, that is a security that describes your rights to some chunk of metal.