Comment by mundo | Hacker News Reader

Comment by mundo | Hacker News Reader

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Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off. You can lose your life savings by buying AAPL, but you can't lose it despite AAPL going up because you didn't read the fine print on the brokerage website.

The reason for accredited investor requirements is that it's not realistic to do the same with small businesses. It is perfectly legal, and not totally uncommon, for startups to have very unfavorable terms for investors. If the LLC paperwork says the majority partner can choose to buy back your shares against your will for a dollar any time they like, then they can, and it's your fault for not reading it more carefully.

I've heard of many cases, and personally witnessed one case, in which an accredited investor put a lot of money in to a startup, and lost it even though the startup did well. The requirements may not be perfect, but I don't think it's fair to suggest they don't serve a purpose.

>>Lotteries, mortgages, and public securities are heavily regulated to make it nearly impossible to get ripped off.

The poorest households in the US spend something like 11% of their income on lotteries. There isn't any way lotteries could rip them off any more.

In a hypothetically free market world, they would be dumping their disposable income in stocks sold over the counter in convenience stores, or directly through their phones, and perhaps traded without intermediaries on the blockchain, and would be developing some skills in investment analysis, along with an asset base, over time, instead of developing new lottery number picking techniques based on mathematical quackery and superstitions.

> In a hypothetically free market world, they would be dumping their disposable income in stocks sold over the counter in convenience stores,

I would not be so sure about that. The poor (who buy lottery tickets) have a lot less ability to delay gratification. And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option. Firstly it takes a year and secondly it's not enough to escape their current life.

>>And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option.

There are many offerings in the DeFi/token market that offer the prospect of massive payouts on those time frames.

Penny stocks can have a similar appeal.

These markets are replete with 'scammish' offerings and outright scams too, but over time, I strongly suspect you'd see retail investors become more discerning, as they learn through a process of trial and error what works and what doesn't.

> And if you compare the chance to double your $10 in the next year (e.g. invest in $QQQ) to having the chance of being a millionaire next week, the bet to gain $10 is not an appealing option.

the odds of winning a powerball lottery is about 1 in 290 million to win about $130million. The expected value is therefore $130 x 1/290m = $0.44 , for an investment of about $10 - very small indeed.

The small chance at escaping poverty is great, but the money is not well spent. if that's how they really think, then they will find that escaping is even harder.

Investing is not gambling - investing generates equity/capital growth. You only "lost" in investing if the asset crumbles. By investing in QQQ, it's concentrated, but it's unlikely everything in the ETF crumbles at the same time. So the chance of loss is much lower than lottery.

I'm guessing you weren't invested in tech index funds in the late 90s.

State lotteries are rigged: marketed to the gullible & have far worse payouts than casinos. (Have you seen stare-sponsored Keno games like "California Hot Spot", with draws every 4 minutes, offered in only the very finest neighborhoods' liquor stores to extremely wise gamblers?)

Mortgages were pushed to sketchy credit risks for years, wiping out the the poor's earnings & equity with unsustainable housing costs in (temporarily) pubic-policy-inflated home values - and even now, there's minimal protection against over-concentrating in unwise housing markets.

Plenty of public securities go to zero, often in fraud. But with easy-to-get investing leverage, any amount of initial capital can go to zero with only small moves in public prices. You can lose any amount of money after a small move of AAPL up - if you purchase enough (or leveraged) securities which bet on it going down, which are available to anyone without an accredited-investor-like wealth test.

(Have you seen the promotions, and easy on-ramps, for daytrading & foreign-exchange trading & Robinhood? Or how easy it is to channel any amount of money into crypto trading?)

There's a lot of risky investments. Anyone over 18 can bet their life savings on roulette. That has nothing to do with this. "Well other investments are risky too!" does not apply here because "Investing in startups is super-risky!" is not the reason why accreditation requirements exist.

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