Friday, June 26, 2009

Investment Instrument Idea: Celebrity Net Worth ETF's

These days, an ETF either exists or is in the works for most every imaginable investment strategy. In the old days (at least so we are told) folks would stand around the water cooler at work and brag about their AT&T stock. Now however, we wouldn't be surprised to hear something along the lines of "I just went long on rainfall for the 2nd half of '09, and I shorted Washington State's apple harvest". That being said, we've decided it is our turn to pioneer a cutting-edge investment concept: the Net Worth ETF.

The Net Worth ETF will allow investors to make directional wagers as to the future net worth of an individual, or in special cases, a group of individuals. Celebrities, musicians, professional athletes, reality TV "stars" and other popular figures having a generally recognizable household name will be targeted for participation in the program. Here's how it would work: The celeb's assets would be pored over by forensic accountants, who would subsequently create a standardized set of financial statements. The celeb would then determine a certain percentage, say 20%, of his assets that would be deposited into a trust account. Depending on the celeb's preferences, he or she may also choose to designate a certain portion of his or her gross earnings to be deposited into the trust account on an annual basis. Next up are the lawyers, who descend upon the situation to write up a contract that will set limits, as well as enforcement mechanisms, upon the celeb's ability to touch the assets that have been placed in trust. Preferably, the celeb will be able to access the trust funds Only in the event that he or she has exhausted, wasted, squandered, been fooled out of, or just plain lost all other assets to his or her name. Even at this point however, there will be limits, both absolute and in percentage terms, as to what extent the celeb may "draw down" from his or her trust. Once the lawyers are finished, the trust is now ready to issue shares of itself. Prospective buyers will have the ability to peruse a set of legitimate financial statements, allowing them to essentially compare P/E ratios, price to book value, as well as a multitude of other neat metrics used to evaluate traditional stocks. While characters such as Gorilla Zoe or Bret Michaels might initially draw a large amount of short interest, the Market would be kept in check by the looming possibility that a celebrity could secretly possess a Sean "Puffy" Combs-like business acumen. The celebs would be incentivized via a cut of the trust's management fees, investment banks would profit from underwriting the IPO. Additionally, the celebrity aspect might lure an entirely new set of retail investors into the trading world - a potential boon for online discount brokers. At the very least however, it would be funny.
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