dagblog - Comments for "An inside job"

Yeah. In theory you can't

Flavius — Wed, 12 Feb 2014 15:35:22 +0000

Yeah. In theory you can't fake cash. Unless you do a Madoff.

Once upon a time...long

Peter Schwartz — Wed, 12 Feb 2014 15:04:40 +0000

Once upon a time...long before the SEC and during the days of "bucket shops" and "stock operators"...it was caveat emptor all the way and to the nth degree.

But back then, and for quite a while, investing meant investing in a company, and the reward one expected, principally, was dividends, not 20 baggers.

The good news for the unconnected sheep was that a company could cook its books all it wanted, but it couldn't fake the cash it was paying out.

Yes, in some ways it could. It could pay out one big dividend and no more. It could simply return principal instead of paying out from profits. And it could run ponzi schemes in which peter paid paul.

But in general, a company that paid out dividends, especially increasing dividends, over a long period of time couldn't fake that.

Yeah I am flippant. It's a

Flavius — Wed, 12 Feb 2014 14:16:32 +0000

In reply to The fact that you continue to

Yeah I am flippant. It's a stylistic choice .

Foolishly I hadn't realized that would be considered insulting which I certainly don't intend.

I also chose to employ the shaggy dog (good epithet) routines which probably offend many besides you.

Maybe I should employ a disclaimer " Abandon hope all those who expect a serious reply"

Cheers.

But everyone won't know.

Peter Schwartz — Wed, 12 Feb 2014 13:45:14 +0000

In reply to Re the senior insider: he or

But everyone won't know. Isn't that the point? Nor will insiders want or allow everyone to know and they will prevent that from happening. That's how THEY will make their money. If they allow others to know, their edge disappears, no?

So if the CEO tells the COO and the CIO about an upcoming move, and they buy or sell appropriately, their entire profit (almost) comes from everyone else going in the other direction.

So anyone can try to ferret out whatever information they want, but if insiders collude, then part of that collusion is control of that information.

What am I missing here?

That said, you are right that it is a fine line and hard to enforce only because, yes, smart investors try everything they can to find out as much as they can about an investment before risking their money.

Watching insider stock buying and selling, however, is a pretty good proxy for knowing what is going on. If the insiders are buying with their own money at market prices (not just exercising options) they could be cockeyed optimists, or they could be trying to lure others to the flame to create a self-fulfilling prophecy, or they could know that things are looking up the company and stock price for good reasons.

BTW, I'm fine with these kinds of posts. It's the area in which I work.

This caveat is true now and

Peter Schwartz — Wed, 12 Feb 2014 13:42:23 +0000

In reply to A reply of sorts to all the

This caveat is true now and it's not a problem, as I understand it.

There are LOTS of things that will impact the company's future results that most people don't know and will never know BECAUSE those in the know will keep it secret. So that's always been true.

However, if the secret keepers then get to trade on that information--especially if that information contradicts the public view of the company's health or direction--then the lambs will simply be led to slaughter.

And presumably, fewer and fewer lambs will enter the market. Which won't be good for the slaughterers who need liquidity.

It's true that the lambs don't have a lot of options now, but if you slaughter enough of them, then things could go badly for you on the political front.

But still Will Rogers' wise saying applies: I'm less concerned with the return on my money than the return of my money.

Or this: A 50% loss requires a 100% gain to bring you back to EVEN. Just avoiding losses by staying out of the market and perhaps investing in income-producing real estate properties or other things...is a way to make money. You don't need to play a sucker's game just to fund your retirement.

The fact that you continue to

MrSmith1 — Wed, 12 Feb 2014 05:41:41 +0000

In reply to On Dec 4 1933 Jack Daniels

The fact that you continue to go back to that rather weak prohibition analogy tells me you have nothing to say that actually could lead to a reasonable discussion of this issue. Whether that is intentional or not, I do not know. I have tried to draw you out and have asked you more than once to explain your thinking beyond the flippant remarks and childish shaggy dog routines, but you seem unwilling to do so. I guess I should consider that a blessing..

On Dec 4 1933 Jack Daniels

Flavius — Wed, 12 Feb 2014 03:45:47 +0000

In reply to Is it morally okay for people

On Dec 4 1933 Jack Daniels was immoral and on Dec 5 it wasn't. Despite the confident belief that Oklahoma would remain dry as long as the last voter could stagger to the polls.

Not sure what should be in

moat — Wed, 12 Feb 2014 00:31:09 +0000

In reply to An inside job

Not sure what should be in the law or not after reading this post and its comments but it does remind me when I was in my twenties and went into a brokerage thinking I might place some dough on a deal I had read about.

The broker looked up after looking at my list and asked: "Is the money you are putting into this buy disposable income? Would you be okay if the money you put down today disappeared?

I didn't put any money down that day.

Is it morally okay for people

MrSmith1 — Tue, 11 Feb 2014 21:35:49 +0000

In reply to Joe and Ginny small

Is it morally okay for people to cheat if alot of people do it?

We can't stop people from murdering other people either, yet we still punish people for doing it.

What kind of security can one expect in a market where the rules are changed to say that cheating is legal?

Why would Joe and Ginny Small Investor (and me too), want to put their money into a market that can't be trusted to deal with their / our investments honestly?

Isn't at least the appearance of honesty and transparency necessary for the market to continue to flourish and attract new investors?

Joe and Ginny small

Flavius — Tue, 11 Feb 2014 18:12:02 +0000

In reply to "I'm recommending changing

Joe and Ginny small investors( and you too) should know that a very large share of market activity is preceeded by first obtaining inside information .After which as often as not those wise buyers lost their shirts by relying too heavily upon it.

We can't stop it and should stop pretending we can .