The Worst Insider-Trading Investors Ever

Truly classic story here about trading on insider information. What is insider trading? It’s the buying and selling of a company’s securities by an individual who possesses material, non-public information about that company. Material really here is just a synonym for significant. Significant enough to move the stock price.

Non-public means just that—even the best internet sleuths couldn’t find the info from public sources. So, if you happen to know a big company, for example, is changing janitorial-cleaning services providers, and no one else does—trade away. Not a big deal. Not material enough to move the stock price. And if you discover in a company’s annual report that they’re involved in a lawsuit, and then you find the court papers online and realize it’s a much bigger deal than they were letting on, again, trade away—your conclusion was drawn from publicly available evidence.

If, on the other hand, you are the captain of a fishing boat and charter it out to two people and then overhear them discussing a merger of their publicly traded companies, take their picture, find them on-line, and buy stock in the smaller company, betting, of course, it’s the one being purchased… you may need a lawyer. Especially if you buy $1.5 million worth of call options. If, though, you buy just $2,000 worth of shares, I doubt you’ll ever be caught. But you may carry tremendous guilt with you the rest of your life, you criminal. Or not..

Here’s my truly embarrassing story. I actually insider traded once. No, strike that, three times. And I lost money every time.

One of my best friends and I—we were only 18 at the time—got tips from his dad that the company he was high up at, was about to announce good news. We would stick our life savings into the stock—a few hundred dollars each—and the announcement would indeed come out… and the stock would go down. Yes, good news was being released but it was never as good as the market had been anticipating.

Therefore, we clearly were not young Gordon Gekkos here. We were never formally charged with our crimes and we’ve gone on to live lives on the straight and narrow since.