Hello all, I have no idea where to begin with this one - please move to correct forum if necessary.
I am interested in investing in a company whose progress I have been following due to a compulsorary assignment for my degree, a relative of mine is actively oppposing some of it’s operations for environmental reasons when speaking to the media and has got Greenpeace on board in this manner. (This concern for the environment was not the case in private but I digress and have no desire to get into why activists may/may not be full of it.)
I have no contact with this relative and have not spoken in depth to them for 3 years so I am not in a position to have any insider knowledge as it stands.
The company came back onto my radar due to studies I had to do and subsequently I have remembered some of the issues, how weak they are and how likely next year will see a very successful project start forwhich I can buy some depressed shares now.
Put simply I think I can make a quick, safe profit if I invest.
Unless the relative works for the company and has access to nonpublic information, it’s not an issue.
Insider trading involves nonpublic information. For instance, suppose the company is about to announce its quarterly numbers. There are people within the company who know the numbers in advance (the CEO, his secretary, the people in the PR department who are preparing the press release, etc.). If any of these people buy or sell stock because of this knowledge (say, they had a very bad quarter – well below analysts’ estimates – which would drive down the price of the stock), it’s insider trading. In addition, if any of these people tell others outside the company the numbers, then those people buy or sell the stock, it’s also insider trading (this is roughly what Martha Stewart attempted: the got bad news about the company before it was public knowledge and tried to trade on that basis).
I was once investigated by the SEC because I had worked (doing the desktop publishing) on a report that affected a stock’s price, and it was (falsely) alleged that the report was leaked to selected individuals before the information was made public.
But information from someone who is outside the company is not insider trading (unless the person who gives you the information got it directly from the company).
I’m not clear on your relative’s relationship to the company, whether he/she is an employee or an insider, or why you brought it up at all, so I’ll address one clear statement.
How do you know about the project? Is it publicly available information, or is it a secret project known only to a limited number of employees, who are considered insiders? Company’s don’t really like to have a lot of insiders, it’s too much to police. (A large financial services company is currently developing a restatement of earnings and has identified every employee in the company as an insider because it’s too hard to figure out who has access to what information that could affect the restatement. All stock trades are frozen.)
Simply knowing about the project may not make you an insider because there is no guarantee that the project will be successful, or will increase the company’s stock price if it is. Even being an employee does not automatically make someone an insider. But if you got the information from a person whom the company designates as an insider, then you may have illegal insider information.
As mentioned by others, the key is access to material, nonpublic information that can affect the stock price. The typical example of insider information is what RealityChuck describes.
A company will normally restrict trades by insiders to keep appearances clean, such as no stock trades allowed within the interval of 3 days before and 3 days after an earnings announcement or other special announcements. Insider trades must be reported to the SEC, and is public information.
I’ve always wondered why anybody would invest WITHOUT insider information. Jeeze, if you do it like most people do you might as well take your money to Vegas and how is that supposed to make you money?
Based on the facts you have laid out, it does not seem that you would have a problem, unless your studies have somehow gotten you material, nonpublic information about the company (e.g., they disclosed secret plans because you were writing a case study).
Insider trading is a big collection of grey areas. For example, it is legal to trade on material nonpublic information if you are an innocent tippee–that is if you got the information from someone who had no duty to keep it secret. Or, if you were able to piece together from lots of public information or even non-public information that was not material that something big was going to happen.
Companies don’t want to keep everything secret. They want to release as much information as they can without compromising their competitive position, for the very reason that they want people to want to invest in it. By law all of the financial data has to made publicly available. It’s mainly that period when the insiders know the data but it hasn’t been published yet is where things get dicey.
Investing in companies is much more like betting on horse races than the roulette wheel.
You buy a stock with good fundamentals and hold onto it. Good stocks nearly always go up in the long run, and there’s plenty of money to be made even if everyone has the information.
I once purchased $250 worth of stock that in ten years was worth over $2500. No insider information needed.
Turnbuckle, you seem to know alot about this, I got some “information” from a friend at Obasanjo Worldwide Industries. I stand to make a significant return on a short term basis. Is this wrong?
That is a question that only you can answer. “Wrong” is a moral question. IMO, it is only wrong if you don’t make enough money on the trade.
In fact, by trading on insider information, we would actually be sending price signals and helping make markets more efficient. More efficient markets have a tighter bid/offer spread, which helps folks avoid gouging by market makers. So, you are making a little money while performing a valuable service to your fellow man.
I would be willing to help you with this noble endeavor, if you would like to cut me in.