This has got to be the absolute, plain English, best risk disclosure statement I have ever seen... Funny, too... my personal favorite is the "Mortification Risk"...
ipsfunds.com
Plain Language Risk Disclosure: Risks Unique to the iFund
So, you want to manage your own mutual fund? Well, congratulations! Thanks to the miracle of the
Internet, now you can. You may also enjoy being your own proctologist. Or maybe you should take up
something safer, like being a test pilot. Those guys go down in flames too, but at least nobody laughs
at them. This isn't sitting around once a month, eating cookies with some groovy friends and talking
about some horse-and-buggy or canal stock, you know.
New Concept Risk. No one has ever done anything like this before. We don't know whether it will work
or not. We've been told often enough that letting you guys run a public mutual fund is a fruitcake idea.
For all we know, they're right. You have to admit, basing a mutual fund on the notion that a bunch of
people know more than a single person is - ahem! - a novel idea. Okay, okay - whacko. But it's our idea,
and we're kind of fond of it. We don't have to prove it, though - you do. Lots of luck.
Investment Decision-Making Risk. Professional mutual fund managers are quick on their feet, nimble,
steely-eyed, firm-jawed, have no doubts whatsoever that they are right, and never make mistakes. You,
on the other hand, are a mere human. You're going to have to vote - vote, mind you! - on a stock, before
it can be bought for the fund. Cripes, it might take months to buy something. Meanwhile the stock price
soars while everyone is voting, and just after you buy it, the price plunges from its all- time high. You
knew we should have bought earlier all along, of course. It's all those sluggards who screw things up. I
mean, your little explanation of quantuum computing was clear enough for a first-grader, right?
Shareholder Participation Risk. You'll also have to deal with all those ignoramuses in the fund;
basically everybody but you, and there will be thousands of 'em. You know the ones. They stay up all
night trying to find some company you never heard of, that does something you need a Nobel Prize in
quantuum physics to understand. The thing may be chock full of day traders, dippy hippies who think
anyone who isn't a Vegan is evil, gray-beards who think anyone who passes up a canal stock with an
18% dividend yield or hasn't lived through the Great Depression is an ignoramus and a sucker, and
guys who just absolutely know that their new find is the next Intel, and it's only selling for twenty-five
cents a share. What a deal! They'll wear you out about this until you go home and kick your dog.
Not only are things going to proceed slowly, democratic processes are inherently messy. While
everyone is trying to decide whether to sell something, the stock is plunging 50% daily. You've already
got bandages on the tips of every finger, and are looking for something else to gnaw on. Getting people
to agree with you is a major pain in the patootie. Or let's say your stock is soaring. Enough fund shares
are finally voted in favor of the stock to make it a market order, and right before the advisor can buy it,
the price goes nuts. Then he buys it.
Even worse alternative scenario: the fund hits the MOP (Market Order Percentage: this is the
percentage of outstanding shares necessary for a Candidate Stock to become a Market Order for
purchase or sale) , and the advisor buys the stock minutes before a news flash that the CEO just
committed suicide, the outside auditing firm quit, and the SEC announced an investigation into
questionable accounting practices. Then you are going to have to explain to your spouse how you got
sucked into such a nutso idea, instead of going with a solid, professionally managed fund like your
brother-in-law did.
Systems Risks. If a flaky fund like this and all the nut cases who invest in it aren't enough, you'll have
to deal with the Internet. The Web site will crash, the software will develop a glitch, the server will go
down, we'll take the site offline for an update, somebody will dig up one of the main fiberoptic cables in
your state, the pricing service will fail to update prices, the news will announce a huge comet is headed
straight for Earth, and all these things will happen right in the middle of your brilliant explanation of
quantuum computing. Or right when you are about to hit the "Vote" button to make your baby part of
the portfolio. That's life on the Web, man.
Objectives/Strategies/Implementation Risk. We are assuming you'll actually read the Prospectus and
adhere to the investment strategy. Not just read it, but understand it. Silly us. Nobody understands
prospectuses, let alone reads 'em. You tell your friends you have been reading a prospectus, they're
going to think you're crazy. You'll have to worry about things like whether or not you are violating SEC
regulations, or whether you are doing something the fund prospectus doesn't allow you to do (we'll let
you know, but you're still required to worry about it). Remember, the Advisor is just there to advise, not
consent. The fund could get into trouble, and the advisor, the way the fund is designed, can't do
anything about it. The investors might lose money or make the fund's trustees mad. If the advisor or
the trustees can't keep things under control, the fund may have to close or go back to professional
management. Did we mention that no one has ever done anything like this before?
Mortification Risk. You are the first to recommend a stock, manage to convince everyone to buy it,
and it tanks big-time. Down 90%+. The other shareholders will remember who recommended it - every
last one of them, count on it. Furthermore, they all knew better and would have never bought the thing
if it wasn't for you. The other investors tend to take it personally.
Lawsuit Risk. What if all those investors get mad at you for losing their money, and they sue you for
making a really stinky recommendation? Of course, what they are really mad about is they went out on
their own without telling anybody and sank every dime they had from (a) their spouse's inheritance, or
(b) his or her her dead mother's life insurance proceeds (pick a or b) into a "Sure Thing ", and they are
blaming you for it. Heck, you could make the law books. Nobody has ever done anything like this
before.
Front-Running Risk. Everybody talks about a hot new idea. Some jerk decides the fund is about to
buy a million shares, and buys some with his own money before the fund does, so he can make a lot of
money when the fund runs the price up. That's "front-running ". Or someone thinks the fund is about
to sell a bunch of a stock, and they short it, or sell their shares ahead of the fund, getting out before the
fund does. If we can find out who did it, we'll rat 'em out to the SEC Enforcement Division, dress up in
blackface and fatigues, kick their door down in the middle of the night, and haul them off in irons. Not
before we call all the TV stations, though.
Financial Information Risk. You aren't going to get to schmooze with all these TV portfolio managers
and scarf up hot tips to take home. Analysts aren't going to be beating down your door to talk to you,
because you might make a hundred million dollar trade with their company and double their year-end
bonus. You are going to be reduced to asking your kids if they think a company is a good idea. Your
kids. How embarrasing. You are going to have to beaver away at figuring out what a company really
does, all on your own, because the information might not be available on the fund website, all digested
and prettied up for you. If you don't do all this, and you nominate it for the fund, somebody might make
fun of your nomination. Mortifying.
You are going to have to actually pay attention to things like whether the iFund has any cash. Whether
you can meet redemptions. You will have to begin thinking in terms of market and economic sectors. No
more just alphabetizing your list of stocks. That's for amateurs. If you start going around laughing at
people who alphabetize their stocks, they'll thump on you in an alley one night. Rude, man.
Freeloading Risk. We don't tolerate freeloaders. You can't just plop in a bunch of money, sit back, and
watch everyone else do all the work. Sorry, but we insist. In fact, if you don't do anything for six
months, and you don't start beavering away when we rap your knuckles, we'll cash you out. If it's at the
bottom of a huge crash, and the day before the biggest bull market in history takes off, tough cookies.
We don't care if you are out of the country taking care of your dying mother. It's kinda like a poker
game. You can't just ante up your money and expect the winners to share the pot with you. You have to
actually play cards as well.
By the way, no one has ever done anything like this before. Did we already say that?
Just so you know. Don't come crying to us if you lose all your money, and you wind up a Dumpster
Dude or a Basket Lady rooting for aluminum cans in your old age.
Please e-mail us if we haven't scared you enough, and we'll try something else.
KJC |
