Investing 101: Buying And Selling Stocks For The Average Joe Or Jane

Benzinga recently sat down with Mark Elenowitz, CEO of TriPoint Global Equities and its online division BANQ®, to talk about the Jumpstart Our Business Startups (JOBS) Act and bringing small-cap IPOs and capital formation back to individual investors.

Stock Investing 101

Benzinga: Let’s take my grandma as an example. She’s got a checking account on Chase Bank JPM). That’s all she has, no escrow account, no broker… Still, she wants to buy a few shares of Amazon.com, Inc. AMZN, Facebook Inc FB and Nike Inc NKE — brands she knows. Or maybe, get into the IPO of the company that makes the prosthetic that got my grandpa moving his arm again after a decade. How does she do that?

Mark Elenowitz: She would come to our site and have a choice. (1) She can open an account with us and have a brokerage account with us; or, if she is choosing to invest in one of our JOBS Act IPO’s (2) she can invest using the funds where she has that money, without having to open an account with us, through an escrow account, and she can have the certificate then mailed to her, or she can hold it at the transfer agent — if she doesn’t have an account.

However, in order to sell that security at some point in time, she’s going to have to open a brokerage account [because] this is a public offering. These are tradable shares, so the only way to exit is through the public marketplace.

Picking The Right Investment*

Elenowitz: It’s key that people really understand what their investment objectives are and what their suitability requirements are.

Grandma might have the ability to invest in a pre-IPO company or a high-growth company, and she might have all the money in the world. Nonetheless, she’s on a fixed income, so she really shouldn’t be investing in speculative plays where the risk of the marketplace is high.

I’ll give you another example, which applies to private placements. Joe Plumber [another pseudonym for Average Joe or John Doe] had a slip and fall and got a $3 million settlement. He has all the cash that he needs from an accreditation standpoint, but he certainly shouldn’t be investing in high-risk investments.

BZ: Why would you say that?

Elenowitz: Because it’s our job to protect [the investor]. We have a fiduciary responsibility to make sure investors understand what they’re buying and meets their investment objectives.

We’ve talked about the positives of the JOBS Act. The negatives of the JOBS Act is that you have entrepreneurs that aren’t required to use a broker/dealer to raise capital under these new requirements and they might be making exaggerated claims that lead people to think this is the next Twitter Inc TWTR. So, they put all their life savings into it. This is dangerous situation.

BZ: Now, taking into account that research reports are usually hard to understand, and SEC filings — where investment risks are listed- are formatted in a very unfriendly way for retail investors, how do you educate investors on the risks, and potentially the risk/reward profile of a certain company?

Elenowitz: When you look at a prospectus it’s black and white, and boring, and it can tell you all the reasons why you’re going to lose your money. And, this is very important. Understanding the risk is something all investors should read, but there is often more to the story.

What we’ve done at BANQ is take the other side: We now have a visual experience, where you can see the product, meet management and sometimes tour the facility. You can see a video of the product in use; you can see a color and graphical demonstration of what this company does.

It’s important to hit a balance where you don’t get too overexcited about the visual experience versus the risks associated with it.

But now it blends it; it’s marrying Main Street with Wall Street. It’s allowing Wall Street to finally catch up with Main Street, because Main Street is used to a visual experience: they surf the web, they look at Facebook, Twitter, all those things. In the past, we weren’t able to do that; now with the JOBS Act we can.

Last Considerations

BZ: A few clarifications. What’s the threshold for retail investing? 

Elenowitz: There’s no minimum, however, a round lot (what counts as a shareholder) for NASDAQ or the NYSE is 100 shares.

BZ: So, a person could buy one share of Apple Inc. AAPL and one share of Boeing Co BA?

Elenowitz: They could buy one Apple share; actually, on those types of large positions, we offer what’s called fractional shares, so they could buy a half a share. So there is [in essence] no minimum; and there is no maximum as long as a security trades on the NYSE or Nasdaq. If it doesn’t trade on a national securities exchange, then JOBS Act limits the amount that you can only invest to 10 percent of your income or net worth.

*Disclaimer: Readers should be cautioned. Just because one has the ability to invest in a certain security doesn’t make that the right investment.