Bloomberg’s Matt Levine recently wrote about what he calls a Certificate of Dumb Investment that investors should sign before buying certain investments.

To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”

He goes on to observe:

If you want to invest in weird private investments and do a lot of careful due diligence to find the good ones, fine, good, have at it, the SEC shouldn’t stop you. If you want to invest a small portion of your money in weird private investments as lottery tickets, knowing that a lot of them will go bad but hoping some might pay off, fine, great, go for it, it’s a free country. But if you want to invest all of your money in weird private investments because your cousin told you about a cool new app, someone should tell you not to. They shouldn’t necessarily stop you, but they should tell you it’s a bad idea, and only let you do it once you have been forced to confront the likelihood that you’re being a fool.

The idea of the Certificate of Dumb Investment applies equally well when it comes to buying opaque securities.

Below is a slight modification of the Certificate to make it apply to opaque securities.

I want to buy an opaque investment.  I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off buying a transparent investment where I can know what I own, but I want to blindly bet anyway.  I agree that I will never, under any circumstances, complain to anyone when this blind bet inevitably goes wrong.

As Matt observed, if you want to blindly bet a small portion of your money on opaque investments as lottery tickets knowing that a lot of them will go bad, but hoping some might pay off go ahead.  But if you want to blindly bet all your money on opaque securities someone should tell you not to.  They shouldn’t necessarily stop you, but they should tell you it’s a bad idea, and only let you do it once you have been forced to confront the likelihood that you’re being a fool.

This is the idea behind the label from the Transparency Label Initiative.  The lack of a label is a reminder you are blindly betting and are likely to lose money.