Inside Information

If you’re one of the tormented souls upset that you didn’t get any information from a Facebook insider, consider yourself lucky. As any short seller can tell you, corporate insiders are the last place you should be getting your information. They are often either lying or have downed so much Kool-Aid they wouldn’t know the company is in trouble until bankruptcy attorneys are fighting in the lobby to get a meeting. Even if the information provided is correct there is still no certainty about the extent to which it’s already reflected in the stock price, and it only takes a rumor or big player’s hunch to move prices enough to dash your dreams of underhanded fortune.

But whatever the advantages of inside information, focusing on the unfairness of access to inside information ignores the obvious. Every trade has a buyer and a seller, each thinking they’re going to come out ahead. If you want to make a trade and you don’t think you know something the person on the other side of the trade doesn’t, you shouldn’t be making the trade. The essence of having an edge is possessing some information, insight, experience, or methodological superiority that allows you to know when buying what the other guy is selling is a good idea, despite him being equally convinced of the opposite.

Information is inherently asymmetric in every transaction and we all try damned hard to keep it that way. When you buy a house do you really think the disclosure statement is telling you every problem the seller knows about the property? Do you tell the seller area rents show he could make 8% a year after tax by renting the place out? Hell no, because it’s your inside information. We all use what we have, and all want to get whatever edge we can while still being able to sleep at night.

We can all hope Josh Brown’s war on the Wall St status quo succeeds, but fair or unfair, right or wrong, love it or hate it, you have to deal with the market as it is right now. Blaming others for your losses leaves no solution other than avoiding the markets entirely. The brutal truth is if you lose money it’s your fault. Period. But this is also the best possible news because your choices are one thing you can change today, all by yourself. So stop worrying about how Wall St is screwing you and work on creating an edge of your own. Just don’t forget to keep it to yourself.

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One thought on “Inside Information

  1. Pingback: Friday links: smaller is better | Abnormal Returns

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