Types of Investors In the Stock Markets

What Type of Investors Are You or Will You Be?

Stock (MP) In the world of investors, there are three types of people: those who don’t talk about it, those who talk about it, and those who be about it. Which are you or will you be? If by now, you’re not a shareholder — you are a slave to money; when in fact it was created to work for you. Some people may stumble into financial wealth, but for the most folks, the way to get riches is to save and invest in the stock markets, over time. And that’s what investing is all about – having your money work for you over time in the markets.

Although our number one goal is to become an Ultimate investor, many of us are satisfied being Sophisticated shareowners. Yet, our Ultimate types include capitalist, like Bill Gates, who ranked number one with a net worth of $79.2 billion of Microsoft’s fame; followed by Carlos Slim Helu’s family, with a net worth of $77.1 billion, of Telecom. Then there’s Warren Buffett, with a net worth of $72.7 billion, of Berkshire Hathaway. Amancio Ortega with a net worth of $64.5 billion of Zara. And last, but not the least, Larry Ellison, with a net worth of $54.3 billion; his source of wealth is Oracle, and the list goes on…

Different types of stock market investors

Shareholders, like investment plans, are typically not created equal. Average shareholders buy packaged securities such as mutual funds, treasury bills, or real estate investment trusts. Professional investors are usually more aggressive –they create investment opportunities or get in on the ground floor of latest offering (IPO’s, etc.), build businesses and marketing networks, assemble teams of financiers to fund deals too big for them to undertake alone. Plus, they pick businesses with the most promise for initial public offerings of stock. Does that bring Warren Buffett to mind?

1. The Accredited investor

As defined by the Securities and Exchange Commission (SEC) under Regulation D, accredited shareholders are financially advanced and have a reduced need for the protection offered by certain government filings. Accredited shareholders include people, banks, insurance firms, employee benefit plans, and trusts. Although financially educated, accredited types are not necessarily financially literate. Some may seek security and comfort and not wealth and may rely on advisor’s to formulate and carry out their financial plans.

A. These earn a personal income of more than $200,000 per year, or a joint income of $300,000, in the last two years and expect to reasonably keep up the same level of income.

B. Their net worth exceeds $1 million, either individually or jointly the spouse.

C. A general partner, executive officer, director or a related combination thereof for the issuer of a security offered.

2. The Qualified investor

This person is certainly versed in the fundamental and technical investment world. Fundamental investing requires the ability to assess a company’s potential by reviewing financial statements, tracking the industry the corporation resides and calculating how changes in interest rates and the economy could affect profitability. He/she uses financial ratios to assess the strength of a company. However, they don’t stop there… They tend to have to ability to dissect technical information based on sale history of a company’s stock, the mood of the market and techniques such as short selling and options.

3. The Sophisticated investor

For certain purposes, net worth and income restrictions must be met before a person can be classified a sophisticated investor. Sophisticated shareholders, according to part of the SEC’s definition, have enough knowledge and experience in business matters to evaluate the risks and rewards of an investment. The SEC exempts small companies from registering certain securities sold to these types.

The goal of this type is to build wealth (a Money Pacer) by developing a foundation of assets which could generate big cash returns with minimum payment of taxes. They are deemed to have enough investing experience and knowledge to weigh the risks and merits of an investment opportunity. This investor is eligible to buy into certain investment opportunities, such as pre-IPO securities, considered “non-disclosure” or “non-prospectus” issues. Typically, this sophisticated type must have either a net worth of $2.5 million or have earned more than $250,000 (don’t worry keep following this blog) in the past two years to qualify. They benefit from tax, corporate, and securities laws to protect capital and maximize earnings.

Certain assumptions crop up about sophisticated shareholders: that they can hold their investments indefinitely (the funds aren’t required to be liquidated for cash needs), and they can assume a total loss of investment principal without causing severe damage to their overall net worth.

A. Individuals in this category could, in theory, invest in other complex instruments for example the synthetic collateralized debt obligations sold in the Goldman case. But the size of these deals, which can involve hundreds of millions of dollars, means those arranging them want relatively few and large shareholders, typically institutions.

B. These investors can be sold a variety of unregistered securities and vehicles, such as interests in certain hedge funds and private placements of shares in a business.

C. Usually institutions such as banks, insurance companies, and registered investment companies, as well as individuals with a net worth of more than $1 million, including the value of their home, or an income above $200,000 for individuals and $300,000 for couples.

4. The Insider Investor

Building and owning shares in businesses is what this investor is all about. Let’s expand… This guy or gal can also be a director or senior officer of a company, as well as any person or entity that beneficially owns greater than 10% of a company’s voting shares. Usually, they’re exercising some level of management control. They run business systems from the inside giving them the ability to analyze them from the outside.

5. The Ultimate Investor

The ultimate investor owns a successful business in which he or she desires to sell ownership interest to the public (IP)’s). Therefore, he or she is in the business of creating or buying companies and selling shareholder interest to the public. Bingo, welcome to the wealth game. The Ultimate investor has mastered all the rules and enjoys playing the wealth game. It’s a number’s game baby and piling them up is what we’re all about. They must be able to comprehend corporate strategies, business plans, financial statement and a stock offering prospectus. They know how important having a team of professionals with expert advice and second opinion matters. He or she knows the importance of always having money invested. Whether blue-chip mutual funds or treasury bonds, commodities or stock in upcoming companies with almost no risk of principal.

Don Briscoe
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Don Briscoe

Finance educator, advisor, and leading voice in the global financial literacy movement.Founder and editor of MoneyPacers.com.He lives and enjoys life with his family in New York.
Don Briscoe
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