Insider Trading


I have a thought on insider trading.  And this pertains to politicians as well as corporate executives.

See, we want to be able to know as much about a company as we can, right?  The allocation of capital to the successful at the expense of the incompetent is crucial to the success of capitalism.  As such, any input we can get to the potential success or failure of that company is welcome; indeed, desired.

Given that, would we rather have a condition where the people who “know” must keep quiet so that the rest of us may invest foolishly or would we rather have that condition where we all know equally and fully the risk we are taking?

I would think that watching how a CEO spends his money would be desirable, not something we wanna suppress.

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5 comments
  1. nickgb said:

    I think you’re fundamentally misunderstanding insider trading. It doesn’t ban disclosure, it bans making trades based on information that isn’t public. The information stays private due to private agreements, or due to greed. Insider trading laws just keep you from acting on it as long as the info is private.

  2. Plus as the public we are also informed of actual insider trades, meaning trades by the corporation itself (buybacks) or by the executive team. How many everyday people actually look at that information, however, is another matter.

    With politicians, the problem that the book “Throw Them Out” brought to light so well is that there were insiders trading – politicians with private knowledge – that weren’t technically considered insiders when they should be.

  3. pino said:

    it bans making trades based on information that isn’t public. The information stays private due to private agreements, or due to greed. Insider trading laws just keep you from acting on it as long as the info is private.

    If we allowed insider trading, wouldn’t the investments of the insiders be useful information as to our own buying and selling?

    • nickgb said:

      We’re definitely confusing some terms here. Insider trading means trades done by a person with non-public information. It is usually illegal.

      Trades performed by executives are legal, but need to be reported, etc., and typically are limited to times when the knowledge becomes public anyway (so it isn’t insider information anymore). It is an exception to the general rule that you cannot trade on non-public information.

      The short answer to your question is that you can use stock moves by executives to get a feeling for the health of a company, but many insider trades are not done by the executives (and thus aren’t disclosed) and even the moves by executives are not transparent (they may increase or decrease their stock holdings for liquidity purposes, tax reasons, etc.)

      Either way, I’m not really sure what your post is getting at. What you want to have happen already does happen (and is legally required), and the stuff that is typically called illegal insider trading is totally different.

  4. pino said:

    We’re definitely confusing some terms here. Insider trading means trades done by a person with non-public information. It is usually illegal.

    Right.

    I’m simply saying that maybe it should be legal.

    Either way, I’m not really sure what your post is getting at.

    I’m not as outraged as everyone else that Nancy Pelosi has gotten rich using insider information she enjoys as a member of Congress.

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