Reopening Insider Information Debate.

[David Sklansky]

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Most of you, including Jason Stausser are wrong. I'd make a small bet on it. Just using pure thought.

When I saw a long line at the newly installed Monopoly machines I immediately bought Williams. And I screwed the seller. Except that he should have realized that someone might have been doing that to him. It is a legitimate part of the game. And as unpalatable as it might sound, the same is true if I overhear two terrorists on their way to bomb the Bellagio (especially if I report them first). The possibility that something along those lines is going on should be part of your calculations. Unless you are DesertCat. It is ridiculous to have laws that expect people to refrain from stuff like that.

The only time the answer is unclear, I would think, is if the information is specifically related to undisclosed aspects of a business that is only privy to insiders. That is why I would think the executive who sells a competitor's stock short when he can't buy his own, is likely breaking the law. As far as someone overhearing executives and then trading on it, my take would be that he gets off but that the executives reimburse those who lost money due to their carelessness.

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holy cow david lol... this is almost as funny as the time you approached me in the Rio saying "hahah you are that idiot who insults me online" when you were with that black escort (for which it is fun to tease you for).

This is obviously NOT insider information. Anyone CAN go to a casino and see a line of people.... There is absolutely nothing illegal or insider about this. This is just called doing your homework.... Hearing a CEO whisper on the phone about great earnings then using that to make a trade, or hearing information about a terrorist attack and then shorting the building they are about to blow up is obviously insider trading.... This example is like saying "everyone loves this one biotech drug but I got my hands at it at the store over the counter and I am certain that this drug is a piece of [censored] so I sell it".... Also, just because you saw a long line of people doesnt mean that the stock is going to go up, but that is just an aside.

love you still,
Jason

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She's a nurse.

And I'm still sure you are wrong even if my analogy was poor. I overhear officers of the NAACP planning a boycott of some product because of a racist commercial and I short the stock. That's illegal? You might be right about information insiders are expected to keep secret, but you can't be about the terrorist example.

[Jason Strasser (strassa2)]

the terrorist example is vague enough where it might not be insider trading, but it is definitely unethical. whether it fits strictly under insider trading or not, i guess you might have a legal bone to pick, but there is no question that acting on this information is wrong. there is no rule that you are free from getting in trouble of insider information even if your inside information is bad... i'd say if you got a tip from a CEO but he turned out to actually be wrong (or lied to you), you'd definitely still be guilty of insider trading because your intent was to trade on information you knew was nonpublic.


hot nurse by the way david!

[Mark1808]

It has always been my understanding that it is illegal to trade on MATERIAL NON PUBLIC information. Where there is a direct link to a company insider the guilt is obvious, however their can be instances where their is no direct link and guilt can't be so easily determined. It is therfore up to the SEC and the Courts to decide what MATERIAL NON PUBLIC information is.

The laws are intended to help those that are not on the inside but actually they hurt market participants who do not see all information reflected in market prices.

In the three cases you cited I personally would not trade on any because I belive they all constitute MATERIAL NON PUBLIC information. In reality I believe most insider trading cases are never discovered or prosecuted.

[johndenver]

The knowledge that there is a line for a monopoly product in a public place is not private info, DUCY?

In your terrorist example, the terrorists are not insiders of any company, therefore it is not insider or illegal trading, its the equivalent of knowing a good weatherman who says there will be a lot of hurricanes this season and then you go out and short oil stocks. perfectly legit.

[CrushinFelt]

Not sure why everyone is speculating. I'm also not sure why the consensus of people on an internet board would justify a conclusion.

SEC Page on Insider Trading

Or just email the SEC.

[DesertCat]

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Not sure why everyone is speculating. I'm also not sure why the consensus of people on an internet board would justify a conclusion.

SEC Page on Insider Trading

Or just email the SEC.

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you understand the SEC definition isn't necessarily correct, don't you? The SEC is constantly trying to push the boundries in defining IT, and occasionally gets its wrist slapped by the courts for doing it. The SEC believes that a vague definition will prevent more bad acts, and a strict, consistent defintion will open unforseen loopholes.

[Jimbo]

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I'm wondering why no one seemed too concerned about the fact that people here had wildly different takes on whether or not my scenarios constitute insider trading and that no conclusion was reached.


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Really? Let me help, hypotheticals like this do not make any profit for us in this forum. It is akin to people who wonder why you don't play in the "Big Game". In some forums I imagine people really care whether or not you could beat the game or not, here unless we could profit on you playing your existence in or out of the game doesn't matter at all.

Jimbo

[PairTheBoard]

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I'm wondering why no one seemed too concerned about the fact that people here had wildly different takes on whether or not my scenarios constitute insider trading and that no conclusion was reached.


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Really? Let me help, hypotheticals like this do not make any profit for us in this forum.

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This topic is not really about what constitutes illegal insider trading. It's really a followup on Sklansky's proposal that fundamental analysts could make more money if they factored the market price into their calculations of intrinsic value. You see him alluding to that point when he says,

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DS -
The possibility that something along those lines is going on should be part of your calculations. Unless you are DesertCat.

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although his DesertCat aside puzzles me unless it's sarcasm.

His idea is that there is likely to be a lot of information of this kind that is embedded in the market price and beyond the scope of the fundamental analyst's due diligence. Therefore, the FA must "guess" at how much of the difference between market price and FA-Value is due to information available to the market but not to the FA, and factor that guess into his calculation of intrinsic value. That is, unless the FA has special insight into the market price that allows him to apply Sklansky's fundamental theorem.

This Insider Trading topic is just Sklansky's way of providing some examples to support his proposal that we should look to his Fundamental Theorem of Investing to make more money in the market.

PairTheBoard

[David Sklansky]

"His idea is that there is likely to be a lot of information of this kind that is embedded in the market price and beyond the scope of the fundamental analyst's due diligence. Therefore, the FA must "guess" at how much of the difference between market price and FA-Value is due to information available to the market but not to the FA, and factor that guess into his calculation of intrinsic value. That is, unless the FA has special insight into the market price that allows him to apply Sklansky's fundamental theorem.

This Insider Trading topic is just Sklansky's way of providing some examples to support his proposal that we should look to his Fundamental Theorem of Investing to make more money in the market."

Not a bad analysis. Except that I don't think that the reason that the market's valuation's are sometimes more accurate than the FA is just because of insider information that is bordeline illegal. It is often due to perfectly legal information that even a great FA is not privy to, or hadn't realized might affect the stock price. In other words it might not be so smart to say "what does this stock price have to do with the price of tea in China?". When actually it might.

Also, it should be noted that information not taken into account by the FA is often probalistic. And when it doesn't pan out, the FA mistakingly thinks he made a good bet. In other words some people realize that ABC has a 20% chance of having a thirty point slide. So they keep the stock at a level five dollars below what it would be without this danger. An oblivious FA thinks he came up with a good buy and pats himself on the back when the unseen danger subsides and he picks up his predicted five dollars. Which will happen 80% of the time.

[PairTheBoard]

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"His idea is that there is likely to be a lot of information of this kind that is embedded in the market price and beyond the scope of the fundamental analyst's due diligence. Therefore, the FA must "guess" at how much of the difference between market price and FA-Value is due to information available to the market but not to the FA, and factor that guess into his calculation of intrinsic value. That is, unless the FA has special insight into the market price that allows him to apply Sklansky's fundamental theorem.

This Insider Trading topic is just Sklansky's way of providing some examples to support his proposal that we should look to his Fundamental Theorem of Investing to make more money in the market."

Not a bad analysis. Except that I don't think that the reason that the market's valuation's are sometimes more accurate than the FA is just because of insider information that is bordeline illegal. It is often due to perfectly legal information that even a great FA is not privy to, or hadn't realized might affect the stock price. In other words it might not be so smart to say "what does this stock price have to do with the price of tea in China?". When actually it might.

Also, it should be noted that information not taken into account by the FA is often probalistic. And when it doesn't pan out, the FA mistakingly thinks he made a good bet. In other words some people realize that ABC has a 20% chance of having a thirty point slide. So they keep the stock at a level five dollars below what it would be without this danger. An oblivious FA thinks he came up with a good buy and pats himself on the back when the unseen danger subsides and he picks up his predicted five dollars. Which will happen 80% of the time.

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That's what I thought you were getting at. Your monopoly machine example is not even close to a borderline insider problem. It really serves to illustrate the points you wanted to make which are quoted above. Even better is the hedge fund example given by Groty about privately conducted market research on retail sales trends.

The problem is that there is generally no systematic way of determining reasons for the FA-Value/Price differential. Even your special insights amount to guesswork. Yet the fundamental analysis method has proved very successful for many investors. Spending their time trying to find special situations for applying the Sklansky Theorem might very well be better spent simply doing more FA research.

I don't think anyone here would argue there isn't value in obtaining special information like your monopoly machine info, or Groty's hedge fund market research. Information which either isn't available to the general market. Or knowledge about how the market is specifically misevaluating information that is available to it. Such information or knowledge is valuable by itself and I can't see how it wouldn't add value to a fundamental analysis - which I think was the point of your thread on that topic. If you have ideas on how to obtain such specific information I'm sure people here would like to hear them. The thing is if you don't, it doesn't do us much good listening to you tell us that it would be nice to have.

PairTheBoard