Life Isn't Fair... And Nothing Proves This Better Than Private Investing
A couple weeks ago, I wrote about an investment opportunity that would allow investors to buy shares of a company at less than half the going market price.
Not only that, but along with these heavily discounted shares also came something called "warrants" — basically a legal document that allows that investor to buy more shares of the same company for a set price, for a period of two years after those discounted shares are paid for.
Doesn't matter if the stock doubled, tripled, octupled, or grew by a factor of 100 — if you had participated in the initial purchase, you'd get to buy more for the prescribed price, come hell or high water.
Within two weeks of my readers getting news of this opportunity, retail investors were trading the stock for almost 2.5 times the price that this special group got to enjoy.
The only drawback for this select group of investors was that they had to hold the stock for a couple months before getting to sell it... In this case, however, as in most cases, that hold time only worked in their favor.
Since these shares were coming directly from the company, and not from existing stakeholders (as in the case of open market trades), the money paid for these shares went directly into company coffers to finance operations.
Those operations, in turn, would propel market prices even higher as the company hit new milestones, achieved new goals, and moved forward with plans.
It's a win-win. Both the company and the investor get what they want. Compare that to a retail investor, who buys, waits, watches the news, and hopes.
If it seems a bit unfair, it gets worse.
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In order to qualify for this exclusive pricing, you need to need to meet a crucial criterion: You need to already be somewhat rich.
It's not a requirement set forth by the company or by the exchange, but by the one organization that's supposed to have your rights in mind above all else: the federal government.
According to the rules set out in the Securities and Exchange Act, a law designed to protect investors from undue risk, in order to participate in these special pricing buy-ins, an individual needs to have either $1 million in the bank (the equity you have in your home doesn't count) or be able to show an annual income of $200k or greater for two consecutive years.
If you've ever heard the saying "the rich get richer," there is probably no better or more direct illustration of this premise.
If you don't meet either one of these criteria, you're out. Period.
Just another case of the federal government protecting you from yourself and, in the process, cutting you out of the most lucrative avenue of investing there is.
These special investing rules I'm talking about define what's known as the "accredited investor" — an individual who stands apart from the retail investor.
The investments these accredited investors are allowed to tap into are known as private equity investments.
Both public and non-public companies can raise money from accredited investors through private equity financings.
Private companies value their shares internally and issue those shares to investors in financing rounds based on need.
Public companies, whose shares are valuated by the market, do the same thing, pricing their shares at bargains to attract big investors and get the money they need in exchange for equity stakes that will be tradable on the open market, following a brief restriction period.
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It may sound a bit confusing, but it's not. All you really need to understand is that in both situations, you're getting shares directly from the company in question on terms specified by the company, as opposed to the open market, where you're competing with thousands or even millions of other investors for shares.
The potential gains are bigger. Far bigger.
Private equity investors include the biggest, richest investors there are. Guys who put the first dollars into some of today's biggest companies.
Every major brand you know of, from IBM (NYSE: IBM) to Tesla (NASDAQ: TSLA), went through multiple private financing rounds before going public.
Once their shares went public and the retail investors finally got their shot, most of the major profits were already realized by the earliest stakeholders.
If you ever owned Tesla stock, chances are you helped founder Elon Musk become a multibillionaire.
And while you may have done reasonably well if you'd bought early enough, I'd venture to say you didn't do as well as he or any of his buddies did when they sold you their stock.
Life is Unfair, But it Doesn't Have to Be Unfair to You
Mad yet? I was when I learned about all of this years ago.
But getting mad doesn't make anything better. Getting even (literally) does.
If you want to get exponentially richer, you need to be accredited. It's as clear and non-negotiable as the day is long.
Start small, be smart, grow that net worth, and when the time is right, dip your feet into the world of private equity.
The opportunities are numerous and potentially huge, but always very brief in terms of window of opportunity, always very hard to find if you don't know where to look, and always carry some unusual risk due to the restriction period.
If you already meet the criteria I described above, click here to get on the inside track of some of today's most promising private equity opportunities.
If you don't meet these criteria and want to change that, there is a way to get that done, too. Click here to get yourself on the path to the ultimate investor exclusivity.
Fortune favors the bold,
Coming to us from an already impressive career as an independent trader and private investor, Alex's specialty is in the often misunderstood but highly profitable development-stage microcap sector. Focusing on young, aggressive, innovative biotech and technology firms from the U.S. and Canada, Alex has built a track record most Wall Street hedge funders would envy. Alex contributes his thoughts and insights regularly to Wealth Daily. To learn more about Alex, click here.