Building on an Idea

In a past article I've expressed my view that investing in stock market issues is a foolish waste of time and money. Stock markets are closed systems operated by insiders who have only their own interests at heart. The day traders of a decade ago learned this painful lesson: that small fry don't stand a chance when playing in the same arena with institutional investors and individuals with deep pockets. Brokers served their major investors while the little guys were put on hold. When their orders were finally executed, changes in price during the interim often resulted in these purchases made at higher than intended prices. Often it happened that a day trader placed an order for a stock at $10 a share only to have it go up to $12 by the time the trade was made, and then watch the stock drop back to $10.
The bottom line in my post was simply that is makes no sense to give your money to perfect strangers who profit from your investment whether you win or lose. When a company goes under it's your money that's lost, not theirs. And my recommendation was that if you have money to invest you search out local companies from which you can obtain first hand information. A perfect example of what I'm talking about is contained in an e-mail I received recently. It was from one of those investment advisors who says he(they) can assure me ungodly profits in any market, through any depression, recession, global pandemic (I made that one up) - in short, no matter what happens! And...
they were giving me the opportunity to save $753.00 right off the bat. That's right! And it was as easy as clicking on the link to order their information. If I just do this one simple thing - get this - I can get this valuable advice for only $1,747.00!
How does that save me $753.00? Simple. If I don't order right away, or by February 5th, the same materials I'll have to pay $2,500.00 for them. Did I jump on the chance to save money? You bet I did: I saved $1,747.00 without clicking on anything.
I believe hat people ought to invest if they have the resources but also that they should be given some protection against the folly of just throwing money to the four winds. For this I propose local Investor's Unions.
These unions would be funded by bond issues earmarked as Economic Recovery Bonds and would be of the same genre as Municipal Bonds. The unions would serve local business in the same capacity as investment banks and stock brokerages combined. They would in other words be full service entities answerable to local government to ensure honest results.
Investor's Unions would audit local businesses that are seeking capital and would report such things as; cash flow, management quality, debt levels,work in progress, market presence, and sales. This would inspire local firms to run more efficiently as they would be examined by an impartial agency dedicated to assessing their quality as investment vehicles. Unions would publish their findings in summary form, details to be disclosed to interested parties at the proper time. The union would make recommendations based on this data, grading these companies in much the same way that Moody's or Standard and Poor rate bonds: AAA to D.
These unions would serve investors at any level of participation, handling sums as little as $100.00 up to whatever upper limit local investors control. Then the unions would put the firms and investors together and structure bond and stock sales tailored to the investor's wishes. The unions would actually issue the stocks and bonds, taking a small commission on each sale from both parties.

The benefits of this system would be twofold; it would provide local investors with reliable and detailed data on prospective firms in which to invest, and inspire firms to upgrade themselves by correcting any shortcomings that the union's investigation might discover. Certainly not all local businesses would be rated AAA owing to local market conditions, market share, cost of raw materials, and a number of other factors. For example; a company rated BB might be well run and have reasonably good fundamentals and be in a position to upgrade itself with a fresh capital infusion. As an investment vehicle it may not be a first choice but may appeal to less risk averse investors who might buy into the firm if bonds were scaled at higher interest rates according to the degree of risk entailed. Stocks would be priced commensurately lower according to the risk, these prices being quoted by the Investor's Union according to a formula relating the level of risk to the price of a stock and the interest due on a bond issue.

It would be well worth trying.