7 ms·

We’re inching closer to Matt Levine’s Certificate of Dumb Investment proposal[1] > Anyone can also invest in any other dumb investment; you just have to go to

• Snackchez 6y ago
  I mean, would investing in FB, Shopify, Tesla, etc IPOs been a dumb investment?
  • NikolaNovak 6y ago
    I think it was addressed in the article, partially with: "[...] Private companies are not just where a lot of the fraud is, they’re also where a lot of the growth is. " I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). Instead, open up the investment but ensure people are aware and reminded of the risks. Hence the tongue-and-cheek "Dumb Investment Certificate" :)
    • leetcrew 6y ago
      > I believe his point was that money/wealth is not a good differentiator of sophistication, AND it puts an unnecessary bar to anybody investing in today's opportunities (to your point). that doesn't mean it's an unreasonable bar. it's sort of like the opposite of "if you owe the bank a million dollars, it's your problem; if you owe the bank a billion dollars, it's their problem". if someone with a million dollars loses a large chunk of it to a bad investment, it's mostly just their problem. if someone with $10k loses a large chunk of it, it may become the (welfare) state's problem. if the state is going to guarantee that basic needs are met at some level, it's not unreasonable to prohibit people from doing risky things that are likely to lead to them drawing on the system. this is the essential tradeoff between freedom and security.
      • morelisp 6y ago
        It's not only this. An environment where the only investment policy is caveat emptor is also an environment that will encourage more scammy investment opportunities. It is also in the state/community interest to make sure investments represent real growth opportunities and not just lining some huckster's pockets. You don't want the entire market itself to end up a market for lemons.
  • ampdepolymerase 6y ago
    A lot of investment is about minimizing risk. If you want examples of hyped-up tech companies that failed after IPO, just look at the dotcom bubble, it wasn't that long ago.
    • nightski 6y ago
      Well if you want minimal risk don't invest. But it's not just about minimal risk but rather risk adjusted returns. Most people (outside of WSB) do not dump their entire portfolios in a single IPO.
      • icedchai 6y ago
        Most people also don't have the capital or time to diversify, to make a significant number of investments into individual stocks. They are better off with an index fund.
        • nightski 6y ago
          You can put the majority of your money in an index fund and dabble in a few riskier investments with a few percentage points of your portfolio. With fractional shares even those with the smallest of portfolios can do this.
  • tobylane 6y ago
    One key point in approaching an IPO is the company becoming significantly more transparent. For those companies and likely every single one there would have been a pre IPO point in time where only hindsight can say it was wise to invest then.
  • icedchai 6y ago
    How about Pets.com, eToys, Webvan, Kozmo, and hundreds of others from the dot com days? It's easy to look backwards and cherry pick success or failure. Timing is also very important. Many stocks go no where for years (like MSFT for most of the 2000's)
    • Karunamon 6y ago
      The difference being that while everyday plebs like you and me without a quarter million to sling around couldn't have touched those at IPO, there would have been nothing at all stopping me from plowing my entire net worth into their stocks once the IPO period was over. Or companies like Enron. Pick a random crypto from coinmarketcap and their creators likely had better financials...
    • itake 6y ago
      or Yahoo
      • ghaff 6y ago
        Of course Yahoo--like many other dot-com stocks that IPOd--would have been a great investment if you got in early-on and got out before the crash. So, yes, it can be all about the timing.
  • adrr 6y ago
    Do you mean buying the stock before the s-1? Only place would be secondary markets and you would not have access financial reports to make an informed decision. It would be a dumb investment.
  • TheCoelacanth 6y ago
    Probably a bit dumb to invest in any single stock if you aren't already pretty wealthy, but being public has a lot of reporting requirements that make it pretty hard for it to be an outright fraud. With a public company, your investment might lose value, but you are probably not going to get completely ripped off. That's not the case if you invest in a private company without doing due diligence.
• vmception 6y ago
  Haha that's fun, it is a ridiculous reality that casinos and negative-expected value games are regulated only at the state-level while the Federal Government pretends those money games don't exist and that it needs to take a paternal relationship over players of positive-expected value games like assets and securities. I feel like someone well funded and clever could find the right combination of judges to correct this reality. Make it a real free for all.
  • Tuna-Fish 6y ago
    It's important to note that the financial regulation we have does not exist to regulate positive-EV games, it exists to regulate away outright scams. Not things where the principals are taking too many risks or where there are unknowables that sink the idea, but situations where the plan from the start is to attract investment, take it, and run away. (Elisabeth Holmes-style "fake it 'til you make it" is sort of in the middle here.) The part that is hard is that it's really very hard to do prevent outright scams without a lot of collateral damage. In general, scam artists are better at understanding and applying any rules than the regulators or the police. Successful ones are also better at marketing their scams to ordinary people than non-scam-artists are at marketing their real business proposals. (After all, a successful scam artist only needs to have skills about marketing their proposal, but a team that is building something real has to have those skills and skills that are useful for building something real.) Much like we know from history that bad money drives out the good, we also have overwhelming historical evidence that in a completely unregulated market, the scams and the amount of money they attract will massively overwhelm actual business. The regulations around the financial markets are "scam-driven", in the same way that FAA regulations are "funeral-driven". Every line of text exists because someone somewhere managed to steal so much money from so many people, that the victims managed to complain enough about how this shouldn't be possible that it became law. The natural progression of rules in both cases is towards less regulation, as everyone is perfectly aware that the regulation that exists is stifling and damaging, so over time the regulations are reduced and enforcement becomes more lax, until something like 737MAX or Madoff happens and regulations need to be tightened again. There is no chance that anyone will ever strike all these regulations down with enough funding and "the right judges", simply because anyone who understands the space understands that while the regulation we have is bad, the alternative is so, so much worse.
• vorpalhex 6y ago
  I basically had to fill out a form along these lines to be able to do options trading. "Do you know what an option is?", "Do you trade regular stocks now?", "Do you understand you may lose all your money with options?". I suspect my brokerage doesn't even actually review the form, they just want to avoid people complaining that they YOLO'd on a Tesla call and lost everything. Given how easy it was, I am kind of in favor of it - it seems important to have a very obvious and plain disclaimer on high risk strategies like this.
  • itake 6y ago
    I think the naming is important. The questions you listed don't fully describe how sub-optimal margin trading is.
    • vorpalhex 6y ago
      You can do options trading and not do margin trading - which is my preference based on my personal risk surface. Margin trading comes with a bunch of other things these days - having to post effectively a bond, keep a certain amount of cash in your money market, etc.
      • xwdv 6y ago
        It's not a big deal. You pay a bit in interest while holding margin, but for the most part there's nothing wrong with having say 30% of your portfolio in margin while the market is rallying. Helps you get much better gains.
      • Jorge1o1 6y ago
        Still, options provide leverage compared to cash equities because the premium is cheaper than the stock price. And just as leverage can magnify profits on the way up, it can also magnify losses on the way down.
• stoppatriarchy 6y ago
  > she gives you the certificate Switching to default-female pronouns is progress but not good enough. Furthermore, implying that a woman is doing the clerical work here perpetutates centuries of female opression and abuse against womxn, especially womxn of color. Please use "they" in the future to avoid this situation. Since it's a quote, "[they] give you the certificate" would be a good way to revise it.
• olalonde 6y ago
  Would be great if we could do this to override all regulations that are meant to protect people from themselves, e.g.: - Buying contact lenses without a 1+ year old or foreign prescription. - Taking drugs. - Online poker. - Buying a Kinder Surprise chocolate. - etc.
  • teachrdan 6y ago
    What happens when the place that is "not up to code" catches fire and sets every other building on the block ablaze? What happens when enough novice investors lose their money to bad investments and scams that it sparks a recession? Besides protecting individuals, regulations protect society from negative externalities generated by these risky activities. I think there's a huge opportunity to decriminalize sex work and drug-related crimes, but we should recognize that risky behavior puts more than just the immediate individuals involved at risk.
    • olalonde 6y ago
      I removed that example from the list as I now see how it could be misinterpreted (I was only thinking of building codes that are meant to protect the tenants, not those that regard externalities).
      • throwawaygh 6y ago
        Even without that example, your parent comment is dead on re: the historical reasons for regulating financial markets (and the historical reasons for fire codes -- the razing of cities like Chicago). For example, consider the SEC. The primary goal of the SEC upon its founding shortly after the great depression was to restore investor confidence in the securities market. Its goal was to improve trust in the financial system, and it achieved that goal in part by introducing regulations that help protect individual investors. The fire analogy is actually a good one, since those policies also have historical roots in the razing of big portions of several large US cities (eg Chicago). In a dense city, your purported distinction between fire codes that protect inhabitants and fire codes that protect cities/blocks is a false dichotomy. The way you prevent the block from burning is by preventing individual buildings from burning. Because in a dense city blocks are comprised of... well... densely packed buildings. More laissez faire strategies might work in much less dense areas like rural Kansas (not even suburbs -- have you seen a bad gas explosion?). And even then, only as long as you you're willing to really go it on your own -- if your attitude is "don't tell me what to do" rugged individualism then don't expect the time of day from insurance companies, banks offering mortgages, or fire departments. Buy in cash, no insurance, and put out your own fires. Similarly, public and secondary financial markets are not your brother's laundromat or neighborhood bar. The best way to protect a large inter-connected financial system from collapses in investor confidence is to prevent obviously fraudulent bubbles from forming in the first place. Expecting individual investors to have confidence in valuations within completely unregulated marketplaces is like expecting the block be fine without thinking about how to prevent fires in any of the individual buildings. This even extends to the "maybe something else might work in rural Kansas" example, where you replace actuaries and fire fighters with welfare/social security and medicaid.