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Methinks said...

I don't see the problem with insider trading at all.

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PeakTrader said...

Methinks says: "I don't see the problem with insider trading at all."

Methinks is a type of fool I'd want to bet against.

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VangelV said...

Insider trading laws should be repealed. Let everyone be on the same playing field and let those with the best information make the most amount of money.

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PeakTrader said...

VangelV, some people can guess better than others. However, when a small group knows the outcome with certainty, it's unfair, even to the best guessers.

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VangelV said...

Why? If the Enron insiders knew the company was in trouble and acted to profit from it the stock price would have started to decline much sooner and the losses would have been much lower. If the Apple insiders knew that their new release would be a major breakthrough they would have began to buy shares earlier and those selling would have realized a price much closer to its true market value. Whenever anyone with good information can act to take advantage of that information the prices moves to a fairer level that reflects that knowledge. How can that be considered a bad thing?

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PeakTrader said...

VangelV says: "...How can that be considered a bad thing?"

Because there are buyers and sellers, and when buyers win, from insider information, sellers lose, and vice versa.

A simple example is if insiders know a stock will be bought-out at $50 (and own no shares), the stock is trading at $20 (and they begin buying), and an outsider has a selling price target of $25 (and bought the stock at $15), then the outsider lost $25.

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VangelV said...

But you are missing the way that anonymous markets work. When insiders who have better information than the general market player make a bid for a stock they increase the price. The sellers that provide them the shares get a better price than they otherwise would have. To say that getting a better price is bad for the seller you have to assume that without the buyers bid price the seller would not have sold. But that cannot be true because a transaction takes place only if the seller decides to sell. So how is getting a better price better for the sellers of the shares?

Look at it from the other side. The insider knows that the shares are overvalued and shorts the stock. Well, that lowers the price for people who want to purchase it. They wind up paying less and losing less. How is that bad for the buyers?

No. If I held the stock and wanted to sell it at $25 I would have sold it at $25 and gotten the price that I wanted. But if I wanted to sell at the market, which is where most transactions take place I will get a higher price as bids by insiders cause the price to increase. As I wrote above, I see no way to argue that giving a seller a higher price than s/he otherwise would have gotten is a bad thing for that seller.

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PeakTrader said...

VangelV, if the seller had the same information as the insider, he wouldn't sell at $25. He'd hold or buy more.

The $25 sell target is based on known information, not new information.

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http://www.blogger.com/comment.g?blogID=28997633&postID=7135847409432951268

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Methinks said...

I wonder if now that it's getting more press, something will be done about it.

I'd happily decriminalize trading on material non-public information.

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PeakTrader said...

Methinks says: "I'd happily decriminalize trading on material non-public information."

So, if you traded, you'd either happily cheat or lose.

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Methinks said...

No, Peak, I am a trader. And as a trader, I see insiders all the time (hint: they are usually smart enough to hide in the options market, but there's plenty of them).

As a trader, I'd prefer to not overpay for an asset or sell it too cheaply because I have stale information. I'd rather pay an insider to reveal his hand. It's cheaper.

It's really the paying an insider for information that pisses people off. Ridiculous, but true.

Why? Are you under the impression that that making it illegal to reveal things like fraud benefit you somehow?

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PeakTrader said...

Methinks, the stock market is a zero-sum game.

If the stock market rises 10% in a year, and all the insider traders make over 100%, then everyone else, i.e. all the outsiders, must make less than 10%.

Insider trading benefits insiders, unless outsiders have the same access as insiders.