Are you surprised that insider trading is occurring or just that it is blatantly obvious in this specific instance? This kind of thing happens regularly by all sorts of players. That's part of the reason retail investors should just buy an index fund, they can't expect to win against professionals engaging in insider trading all the time. SEC enforcement of insider trading was 51 in all of 2018. 51, out of probably millions of instances.
> That's part of the reason retail investors should just buy an index fund, they can't expect to win against professionals engaging in insider trading all the time
Investing isn't zero-sum, there's no need to "win against" insider traders.
Alpha is the degree to which an investment outperforms "the market", where "the market" can be any benchmark you want to use. So yes, by definition, alpha is zero-sum in that not everyone can beat the benchmark, in the same way that not everyone can be above average.
But this tautology isn't particularly meaningful, because most people don't care about beating "the market"; they care about their financial health and solvency, and in many cases, slightly under-performing "the market" can still be perfectly acceptable for a lot of investors if the market is performing well enough and they've met their own expected targets.
(This is, in fact, the principle behind index funds: index funds will never beat the market, and are guaranteed to underperform the market after fees are taken into account, but yet many people still put their money in index funds).
Quick anecdote: I was in a bar in NYC and overheard an i-banker running his mouth about an M&A deal he was working on. The deal closed a month or two later.
So basically you're not allowed to trade with foreknowledge, it has to be a lottery?
Stocks always seemed like legal gambling to me. If you can't predict it and you can't use any edge that others don't know about, then doing anything but using index funds is gambling, or am I missing something?
Read Matt Lewis and his writings on insider trading. As he would say: Insider trading is about theft. If you pickup a dollar bill on the ground, could you be accused of theft? Probably not...
Regarding differentiating index funds, what are those? When ducking "differentiating index funds", I find results about index funds versus ETFs (afaik an ETF is just a stock) or index funds versus mutual funds (not sure what those are). Are ETFs and mutual funds what you mean by differentiating index funds, or am I looking at the wrong thing?
> Also insurance companies are basically bookies.
Hehe yes, it also occurred to me that being in a car accident is basically winning the insurance lottery that car owners pay into.
This is incorrect. If you trade on material non-public information, it is insider trading.
The only questions you have to ask yourself are:
- is the information material? (would an average investor learning of it impact the stock price or valuation)
- is the information non-public?
If the answer to both of the above is yes, you are insider trading, whether you heard about it from a friend, family member, or overheard someone in a bar. It's not only unethical to trade on such info, it's illegal.
To be clear, these were private companies, so I obviously didn't trade on that information, but I somehow doubt that this guy was really thinking about that when he was trying to impress his date.
When an independent investment firm conducts extensive research (including hiring private eyes to track exec movements) and manages to unearth valuable information on a target company, is that counted as insider trading?
If the valuable information could damage the company, I believe it would fall under corporate espionage. But, IANAL. Others may be able to provide a better response.
And when exactly did the news become public? In my experience it usually takes minutes/hours between the event and the mass media covering it. I can bet it isn't insider trading but algorithms reacting to news faster a human can.
If I was going to execute an acquisition, I would buy a bunch of shares, or maybe some kind of derivative, well before I let anybody know what I was doing. Would that be legal?
If you are trading only based on your intentions then it would not be considered insider trading in the US. Bill Ackman did something similar with Allergan. However, you need to disclose as soon as you breach certain ownership limits.
- no legal advice of course -
To clarify, I believe it would still be illegal as a member of Congress, unless the information you are trading on is gleaned from congressional meetings or based on legislation that will be enacted.
