The Commisioner of the SEC, Mr. Paul Atkins recently gave at financial seminar at our military installation. I recently posted the question I asked during the Q&A session. This post has a couple other questions and his respective answers from the Q&A session.
1. When I announced that Commissioner Atkins was coming to give a financial briefing at our local military base, Brandon from Money for Military sent in this question to ask if possible:
“I would like to know if he feels that these Private Equity firms that are going public are good investments. Specifically, I would like to know if Blackstoneâ€™s IPO is a good investment, since this is new investment territory.”
I was not able to ask this exact question, but Commissioner Atkins did answer several points in a roundabout manner.
The question he was asked by the audience (not me this time) involved the IPO process and specifically if company XXX would be a good investment. (He is not able to qualify or recommend specific stocks due to legal reasons).
Commissioner Atkins responded that now was an interesting time in the market place because certain segments of the market are at all time highs and there are enormous amounts of money changing hands. Some of the trends he mentioned included the frequency of companies being purchased by Private Equity firms as well as some private companies going private through the IPO (Initial Public Offering) process. As is mentioned in Brandon’s question, there are even Private Equity firms (that bring public companies private) that are going private themselves.
It was mentioned that many times private companies that are looking for investment capital to expand operations and grow their market share often go public through an IPO to earn the necessary money to expand operations. Sometimes it is the older companies that have experienced market stagnation or are undervalued that are bought out by private equity firms.
The advantages Commissioner Atkins mentioned for buying during an IPO include getting in on the ground floor (Who wouldn’t have loved to have purchased Wla-Mart, Microsoft or even Google at it’s initial market price?!) . But there are also inherent risks as many times these companies going through the IPO process are not established and may not go anywhere. You also run the risk or stock dilution (when the company issues more shares of stock and the relative ownership and value of your stocks diminishes accordingly.) As with all investments, Commissioner Atkins recommended due diligence in researching the investment and its associated risks.
2. The second question asked of Commissioner Atkins was what the SEC was doing to educate America’s youth about money and financial responsibilities.
Answer: The SEC is actively involved in teaching America’s youth through educational programs and games that actively involve the students to learn about the importance of investing and how the stock markets operate. The SEC even works with elementary, middle school, and high schools in a nationwide contest called the Stock market Game, in which classes get together to play a virtual portfolio against other classes. Recently a 7th grade class had the nation’s best performing portfolio in this game.
Another initiative that the SEC supports is Operation Hope’s Banking on Our Future, which promotes financial literacy and education for America’s youth grades 4-12. Operation Hope also promotes volunteerism and donating to worthy causes such as Hurricane Katrine relief.
3. Question: Is there any correlation between new consumer debt and the investments being made today?
Answer: Commissioner Atkins was not aware of any current studies that show this correlation. He went on to talk about how the government had at one point stopped issuing 30 year treasury bonds, but brought them back due to frequent inquiries from insurance companies, banks, and especially pension trusts which need to do long term planning for the upcoming retirements. Commissioner Atkins also mentioned the current problems in the subprime mortgage lending sector and the growth of debt exposure in these markets.
4. Well there was a fourth question but it was a rambling 2 minute dialog about Internet security, fraud, and whether the SEC could do anything about it. The basic answer was that you should perform due diligence in researching any investment, never subscribe to unsolicited investments without thoroughly researching it first, and ensure that you use secure Internet connections, the latest antivirus protections, and limit the access of personal data on the Internet from a trusted computer source if at all possible (e.g. don’t access your bank acct info from the public library or from an Internet cafe.) Most of this answer was basic information.
That was all I was able to see for the Q&A session (I had to leave a few minutes early). I hope you all got some good info from this!
*disclaimer: This post is based upon notes I took and my from own memory from the financial briefing I attended. This does not constitute the official stance of the SEC – please visit their official website for their official stance.