Why you should be financially conservative

[Rianne]

I am confident, on his deathbed, James C. will ask for forgiveness in a way this YouTube video cannot capture. Although, the human conscience is fickle. I wonder if Hitler felt bad for his mistakes. I feel bad when I see roadkill. Poor little animals did not look both ways. I often wonder if Oppenheimer felt guilty for his brilliance. Just wanted to put this whole thing into perspective.

[Dtail]

Quote:

Originally Posted by Rianne I am confident, on his deathbed, James C. will ask for forgiveness in a way this YouTube video cannot capture. Although, the human conscience is fickle. I wonder if Hitler felt bad for his mistakes. I feel bad when I see roadkill. Poor little animals did not look both ways. I often wonder if Oppenheimer felt guilty for his brilliance. Just wanted to put this whole thing into perspective.

It truly depends on whether there is any sociopathic nature to his personality.
It appears not, but who knows.
On Hitler - I would say no.

[Rianne]

This brings to mind "The Madoff Affair" on PBS. I saw this documentary awhile back and want to watch it again. It was on Frontline. Pretty fascinating as I remember.

[jazz4cash]

Eh, it looks to me like this guy didn’t break the law at least not knowingly to be compared with Madoff. He and his “family” of investors share some responsibility for foolish behavior.....but maybe time will reveal he is a crook.

[Sunset]

Quote:

Originally Posted by jazz4cash Eh, it looks to me like this guy didn’t break the law at least not knowingly to be compared with Madoff. He and his “family” of investors share some responsibility for foolish behavior.....but maybe time will reveal he is a crook.

True that this fellow probably didn't break any laws, unlike Madoff who doctored documents , made fake documents, and continually lied to officials and investors.

But, anyone who invests in any fund does basically put the control of what happens in the hands of the fund manager. I find it hard to blame his investors (some who probably were widows) as they don't control the fund, and his prospectus probably stated lots of positive things.

Just like I don't control Vanguard funds, and have to take as truth the prospectus put out which the SEC should be validating.

[clifp]

Quote:

Originally Posted by Gumby Well, to be an accredited investor, one need only have $1 million household net worth (excluding principal residence) or income of $200k for the last two years. https://www.ecfr.gov/cgi-bin/retriev....1.12.0.46.176 I'll bet we all know someone who meets those hurdles but is clueless about investing. Just another lesson that you shouldn't invest in things you don't understand.

Every investment, I've made as an accredited investor, simply required me to sign a statement of a $1 million excluding my house. Nobody actually checks on this thing. A 250K minimum investment is quite large, typically I think they are $100K (I believe that's what Bernie Maddow required). So if you just over a $1 million this could be a big chunk of your net worth.


But even if you are a fairly sophisticated investor, the documentation included with these things can be daunting. I'm probably making in an investment in our local startup accelerator and the subscription agreement is 67 pages of legalize. I can easily understand people not reading them thoroughly or getting confused.

[jazz4cash]

I was wondering about the accredited investor process and apparently they are required to verify that you have the assets required. I think they raised the standard in 2013 ( I suspect due to some individuals overstating their assets and firms willing to look the other way).

[JustCurious]

Quote:

Originally Posted by jazz4cash I was wondering about the accredited investor process and apparently they are required to verify that you have the assets required. I think they raised the standard in 2013 ( I suspect due to some individuals overstating their assets and firms willing to look the other way).

What is the source of that understanding?

[jazz4cash]

I was specifically curious about whether the investor’s assets are verified as I suspected it may be as Clifp described. The relevant text is from Investopedia:
“However, since September 2013, the SEC has required that anyone selling to accredited investors must take a number of different steps in order to verify this status.”

Read more: How to become an accredited investor | Investopedia https://www.investopedia.com/article...#ixzz5Xv9TwH5B
Follow us: Investopedia on Facebook

[clifp]

Quote:

Originally Posted by jazz4cash I was wondering about the accredited investor process and apparently they are required to verify that you have the assets required. I think they raised the standard in 2013 ( I suspect due to some individuals overstating their assets and firms willing to look the other way).

The only verification if ever seen is you sign and statement a check one of 3 boxes.

1. I have more than $1 million assets excluding my primary residents
2. I make more than 200K in the last 2 years
3. My spouse and I jointly make more than 300K in the last years and expect to make that much this year.

[Lurking]

Quote:

Originally Posted by braumeister Very sad story. https://www.tampabay.com/business/in...oney-20181123/

Specifically with regards to this nugget you mentioned (from the article):

Quote:

Many of Cordier's clients had qualified Individual Retirement Accounts at FCStone. Generally, money in such accounts is not supposed to be used for the risky type of trading that Cordier did on the clients' behalf.

How does it work if your IRA goes negative by more than the annual contribution? Can you add money to bring it back up to zero in any amount?
What happens if you can’t cover your losses? Aren’t IRAs somewhat protected from some judgements? What happens next for the investors, and who ends up taking the remaining losses?

[jazz4cash]

You can’t take a deduction for losses in an IRA.

[Lurking]

Quote:

Originally Posted by jazz4cash You can’t take a deduction for losses in an IRA.

I think I can clarify the first part of my question with some hypothetical numbers.

Suppose you had an IRA that had $250k invested in this leveraged hedge fund. Suddenly, after the spike in natural gas prices, you just lost $300,000. So your IRA balance is -$50,000.

That $300k is gone without even a tax write-off. But how do you get your IRA back to 0? Can you make a $50k contribution? What if you have already maxed out your $5500/6500 contribution?

Supposing you wanted to pay off your losses. Are you even allowed to?

[NW-Bound]

I have not watched the video, and only scanned through this thread.

Something is wrong here about people losing more than their IRA money on this naked option deal. IRA accounts cannot be invested in such ways that can lose more money than the principal. It is not legal.

This means no naked options in an IRA. Call options must be sold covered with actual shares. Put options must be sold covered with cash. One also cannot go on margin in an IRA. The above are strictly forbidden.

[Lurking]

Quote:

Originally Posted by NW-Bound I have not watched the video, and only scanned through this thread. Something is wrong here about people losing more than their IRA money on this naked option deal. IRA accounts cannot be invested in such ways that can lose more money than the principal. It is not legal. This means no naked options in an IRA. Call options must be sold covered with actual shares. Put options must be sold covered with cash. One also cannot go on margin in an IRA. The above are strictly forbidden.

That makes sense, and explains why I can’t find much information for this scenario. If they aren’t allowed to invest this way, it doesn’t look good for FCStone (who seems to have allowed it).

Looks likely OptionSellers.com goes bankrupt, investors are wiped out, and FCStone appears to be the only one left who can cover the losses above and beyond IRA balances.

They could sue OptionSellers, but I suspect they will just be one of many unfunded creditors. They could go after individuals for what they owe, but IRAs are generally exempt from judgement so any additional money in retirement accounts would be unreachable (taxable assets and anything left in this IRA account seem fair game). So the most likely outcome I see is FCStone gets a pile of negative press to go along with a decent loss themselves.

[JustCurious]

Quote:

Originally Posted by clifp The only verification if ever seen is you sign and statement a check one of 3 boxes. 1. I have more than $1 million assets excluding my primary residents 2. I make more than 200K in the last 2 years 3. My spouse and I jointly make more than 300K in the last years and expect to make that much this year.

The Investopedia article cited by jazz4cash doesn't offer any specifics on what is required more than checking boxes. Following is a quote from the article...

The Due Diligence
As mentioned, no formal agency or institution confirms the accreditation of an investor, and no certification is issued. However, since September 2013, the SEC has required that anyone selling to accredited investors must take a number of different steps in order to verify this status. Simply telling a firm or checking a box that signals a person is qualified is no longer allowed.

Individuals who feel they qualify can visit a fund and ask for information about potential investments. At this time, the issuer of securities will give a questionnaire to determine whether a person qualifies as an “accredited investor.” The questionnaire will also likely require the attachment of financial statements and information of other accounts in order to verify the ownership of assets listed on a balance sheet like the one above. Companies will also likely evaluate a credit report in order to assess any debts held by a person seeking accredited status.

Individuals who base their qualifications on annual income will likely need to submit tax returns, W-2 forms and other documents that indicate wages. Individuals may also consider letters from reviews by CPAs, tax attorneys, investment brokers or advisors.


Notice that the article is not specific about what the requirements are and does not provide a citation, other than providing answers to a questionnaire. I also highlighted the words "likely" in bold...if something is likely that means it is not required.

[Bryan Barnfellow]

Strange video, to be sure. Others have suggested it had similarities to a hostage video. I kept looking for him to blink his eyes in morse code to spell out "TORTURE". Some may remember this from an American POW's video interview in Hanoi during the Vietnam war.

US Naval commander Jeremiah Denton, who died in 2014, used this clever technique to convey that he and other POWs were being subjected to torture.

https://www.warhistoryonline.com/war...ietnamwar.html

[bberris]

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Originally Posted by Elbata Could someone explain to me what happened? Sometimes I think I understand stuff and other times I think not so much. I don't know how it happens, but did he lose all the money the clients' money and even more? How does that happen when he says he's diversified? Sure makes me thankful to have learned from Mr. Bogle and Buffett.

I believe what they were doing was selling options on volatility of NG, not the price of NG. In essence, they are selling price insurance. When insurance companies sell insurance, they have large assets to back up claims. And most of the time, you can print money this way. When it goes bad, it goes really really bad.

This is reminiscent of the guys who were shorting VIX, either with XIV or by shorting the leveraged volatility notes. This was described as picking up nickels in front of a steamroller.