Minimum Requirements for Investment Advisor Stock Purchase Recommendation

Should not an investment advisor be prepared to predict that the stock being recommended for purchase will outperform the unmanaged S&P 500 or some other relevant market measure in a specified period?

The investment advisor, if a member of the proposed virtual DoBetter Club, will be able to bet that the recommended stock, if in the S&P 500, will outperform the S&P 500 Index in an agreed period. To attract more Club members to bet, the investment advisor could increase the bet to be 150% or 200% of the performance of the S&P 500 Index in the agreed period.

The periods suggested are 30, 90, or 180 days and the standard betting unit is $200.

Therefore, Club members would be able to bet $200, per betting unit, that the S&P 500 Index or agreed premium percentage of which, would outperform the price movement of the recommended stock, since the investment advisor would be betting that the relative performance of the recommended stock would be better than the agreed change of the S&P 500 Index or some other index, by the end of the period.

So, if the period was 180 days and the agreed S&P 500 Index level change was 150%, the relative price change of the recommended stock would have to be less than a 150% change in the S&P 500 Index, for the Club member to win the bet. If the price change of the recommend stock was more than 150% of the S&P 500 Index the investment advisor would win the bet.

The Club levies a service fee of 10% of winnings, with no charge made to the account of the losing bettor, for arranging for counterparties and handling the details of winning payments.

Club members are also able to propose a bet on any other S&P 500 listed stock and the Club will seek to arrange for a counterparty and details of payment. Club members will need to have deposited in their accounts the funds necessary to cover their bet for the number of betting units desired.

The foregoing is presented to illustrate the activity which could occur if there was a Club member having a reason to be interested in making multiple bets on the relative price movement of a stock versus a market measure. However, Club members will also be able to bet on APPL versus AMZN or META versus GOOG, or any two of the stocks listed in the S&P 500.

Some reasons why a Club member might want to engage in multiple bets include belief or knowledge regarding; merger and acquisition possibilities, strike or other legal matters, EPS or dividend payment changes, issuance of reports and articles either good or bad about the company, executive personnel changes, and other events causing a change in the price of a stock. Of course, there may be legal restrictions on the activities of the Club member having the benefit of non-public information, even though bets not involving the purchase or sale of securities may be exempt, as bets on relative price change are not securities. Club members should review the matter with their counsel if involved with a company being the subject of a bet.

We are seeking affiliation with one or more organizations interested in possibly participating with us in the DoBetter club concept.

 

Arthur Lipper, Chairman                 arthurlipper@gmail.com
British Far East Holdings Ltd.