A sophisticated investor

I read about initial public offerings, share buybacks, share splits and rights issues; I see these are financial instruments designed for sophisticated investors and I ask myself, what exactly is a sophisticated investor?

For me, I would suggest trading ordinary shares on a regular basis, trading exchange traded options, warrants, futures and foreign exchange would tend to indicate sophisticated investor behaviour.

This would include margin trading utilising leveraged strategies to supercharge profits, naturally the downside of supercharged profits could be supercharged losses should you misread the market.

Ok, so I need to do some more searching for a definition and the corporations act provided me with some answers. To be classified as a sophisticated investor you must acquire a certificate from a qualified accountant stating that you have net assets of $2.5 million AUD.

That and/or that your gross income for the past two financial years has been at least $250,000 annually. Oh wow, that is a pretty exclusive club, you would be considered wealthy by most criteria.

Now, this certificate must have been obtained within six months of accepting any wholesale offer to acquire any form of securities.

This means this class of investor that can be offered securities without the usual product disclosure requirements that apply to everyday mum and dad investors.

I have to ask, but why? This means you lose all the protections offered to standard investors and you have the ability to lose big with no recourse. 

What it also means is you have access to products offered by institutions that do not wish to offer products to the general public without having to meet normal market product disclosure requirements.

When business conditions improve more companies seek to quickly raise capital, the time and expense of issuing prospectuses and product disclosure statements to retail investors can be bypassed and capital markets are more reactive.

I am now starting to think this is falling into wealth management criteria, an exclusive club where I have no membership privileges. 

These days, I prefer to remain a fairly unsophisticated investor as opposed to my former activities as a trader where I would buy and sell ordinary shares on borrowed funds.

Because of studies and other commitments, I don't have the opportunity to engage in through market research to justify the risk of margin trading.

So remaining as an investor utilising equity instead of debt financing is a far more cautious strategy for me now. I am looking forward to early retirement when I have the time to pursue such activities.