6 ms·
Why do private investors need protection? Why can't they be held responsible for the foolishness of their actions?
by iamkroot 7y ago
Why do private investors need protection? Why can't they be held responsible for the foolishness of their actions?
- baq 7y agoWhat if there’s no way to know what’s foolish and what isn’t? The protection we’re talking about here is equal access to information which is a necessary prerequisite for an efficient market.
- Ididntdothis 7y agoBecause with the rise of 401k and lately low interest rates a lot of people were forced into the market who simply don’t have skill or time to learn these skills to make investments in an unregulated market.
- nradov 7y agoThe vast majority of 401(k) funds are in large-cap mutual funds which don't invest in IPOs. Most 401(k) plans also offer some sort of money market or Treasury bond fund. It takes about 5 minutes and zero skill to learn that T-bonds are safe investments.
- Ididntdothis 7y agoIt’s not like treasuries or money market return acceptable returns for people’s retirement portfolio.
- nradov 7y agoWhat is an "acceptable" return? No one has a right to achieve any particular return.
- Ididntdothis 7y agoA return that lets you retire in this lifetime seems to be the minimally acceptable return.
- nradov 7y agoReturn by itself is meaningless. If you want to discuss retirement then you have to account for the other variables: consumer price inflation, risk, contribution levels, lifespan, etc. For individual workers the most practical suggestion is to save more instead of expecting high returns.
- Ididntdothis 7y agoMost people don’t make enough money to save that much money so they can retire.
- crumpets 7y agoThe number of new cars, new iphones, large houses, and other luxury purchases suggests otherwise.
- astronautjones 7y agothat's not great logic. https://www.washingtonpost.com/graphics/2017/national/seniors-financial-insecurity/ https://www.washingtonpost.com/graphics/2017/national/senior...
- briandear 7y ago401ks are rarely self directed investments though. You can pick fund types, but rarely, if ever, could you pick stocks. The 401k is heavily regulated. And nobody is “forced into the market.”
- Ididntdothis 7y agoYou are basically forced into the market if you ever want to retire. Where else can the regular guy get decent returns? Real estate?
- tathougies 7y agoOh, there is an alternative? As far as I'm aware every form of 'I don't want to work, but be paid as if I am' is tied to market return on capital.
- TheSoftwareGuy 7y agoMost 401ks are invsted in public companies, not private ones
- Ididntdothis 7y agoThe comment was about SEC and S-1. This is very relevant for 401k investors who were supposed to be the suckers to buy this crap.
- onlyrealcuzzo 7y agoAren't all of them? I thought you could only invest in public companies that have PE funds.
- busterarm 7y agoIt's not that private investors need protection, it's that legitimate businesses have to compete against their fountain of capital and that all of these companies employ a lot of people.
- unreal37 7y agoThe model of driving every profitable company out of business by undercutting on price to a massive per unit loss, funded by venture capital, in an attempt to corner the market and have a pseudo-monopoly is bad for "the public" in the long run.
- busterarm 7y agoIt's bad for "the public" in the short run also, because competitor companies are employers and they can't afford to compete in the short run.
- 40acres 7y agoMarkets are more effective when there is truth and transparency, that's why the S-1 was so effective and derailing WeWork's IPO. Private investors don't necessarily need protection but if I was a big player in the private market I'd definitely be an advocate for more transparency.
- seppin 7y agoBecause fraud can be dressed up any number of ways, with no transparency it's impossible to know one way or another.
- didip 7y agoPeople's pension can get dragged into this mess.
- JumpCrisscross 7y ago> Why can't they be held responsible for the foolishness of their actions? Because it's politically difficult. Sometimes, infeasible. The public often pays for defrauded grandmas' mistakes. There are also positive externalities to stable business environments. Diligence costs money. Putting some of that cost on the issuer, once, is more efficient than each investor incurring it. Consistent rules around fraud and disclosure thus prompt new capital formation. The best examples of the need for this protection are the cesspools that are ICOs.
- tathougies 7y agoErm... okay, but grandma couldn't have invested in WeWork unless she was an accredited investor, and if she's an accredited investor, I'm not so sure we need to be feeling a lot of sympathy for her greed.
- JumpCrisscross 7y ago> grandma couldn't have invested in WeWork unless she was an accredited investor Which is a protection around American private capital markets.
- davidajackson 7y agoBut she can buy lottery tickets without understanding that her odds of a profit are worse than jumping on an ICO? Seems hypocritical to me. I'm no expert about legal matters. I'd appreciate if someone else can chime in here. But I found this with a brief search: "To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year." Let's say you're smart but poor. So, even after doing your research, you have to be richer to get richer? Again, seems hypocritical and feels like it does less to protect people. Now, let's say the SEC develops a test for an accredited investor status. How is the SEC supposed to test that you can assess good business ideas/risk efficiently? Some of the smartest people took bets that seems insanely risky and were considered stupid. I don't think there's a test able to judge this. As an aside: It would be cool if hacker news could let you attach a flair to your profile for an area of expertise, and then you could request input from people with a specific flair who are also commenting on a thread.
- KoftaBob 7y agoBecause the LPs who fund VCs aren't only using wealthy individual's money, people's pensions are in there too.
- mbesto 7y agoI generally agree with this, but: 1. Pensions are diversified for exactly this reason and VC isn't usually a large % of the fund. 2. This should be exerted through other pressures at that LP level: political, regulatory, etc...not at the GP level.
- deleted 7y ago[deleted]
- ClumsyPilot 7y agoWhat would it take to convince you that unregulated markets lead to fraud? Are events like 2008 and dotCom bubble unimpressive to you?
- spookthesunset 7y agoDon’t forget crypto currency. Massive* unregulated market that is probably 99% fraud. *of course because it is completely unregulated we have no real way to determine if it is truly a “massive” market or just a relatively small amount of people painting the tape with wash trading....
- ClumsyPilot 7y agoCrypto is an experiment, and everyone knows that. The 2008 crisis happened to AAA rated securities.
- nouveaux 7y agoOur economy and financial systems are built on trust. Fraud makes it hard to have productive transactions. Fraud also has a massive detriment to society. It's not that private investors needs protection. It's that people who commit fraud needs to be punished. It is the SEC's job to build trust and prevent fraud, which it looks like it's doing a great job.
- maerF0x0 7y agoI think part of the article's point is that private investors cannot be held responsible for their foolish because they cause "ripple effects" as externalities (eg: dismantling of a functioning taxi industry)
- perl4ever 7y agoI have the impression this is what lead to the Great Depression. Lots of people were saying, well, banks are failing, they screwed up, let them fail. More recently we had bailouts because the people running things learned about the Great Depression in school.