Many years ago, I was still in high school, I was preparing to make a U-Turn on what was ordinarily a very busy street in The Bronx.
I’d made that turn many times in the past and I knew to really check in both directions before I crossed over the 2 sets of double yellow lines. Back then, I actually cared what else was on the road.
Then, as always, when I sensed the “all clear” I made my turn.
That time, was just like all the preceding times, successful.
As I settled into waiting at the curb to pick up my father, I heard an unexpected rapping on my driver’s window.
Startled, I looked up and there was a beat cop, back in the days when there were lots of foot patrol policemen.
I rolled down my window already shaking in my flip-flops.
The policeman looked at me and said “It’s not so bad that you made an illegal turn, but what’s bad is that you made it in front of me. Don’t ever do that again”.
With that, he let me go. Never even asked for my license or registration.
That incident colored my outlook on crime for life.
Well, that and Watergate, a concurrent event.
Fast forward 40 years and crime is all around. The particular crime that interests me is insider trading and it is once again a hot topic, as it has been in the past and will assuredly be in the future.
With the conviction of Raj Rajaratnam a couple of weeks ago, there was a flurry of weight jokes and lots of sanctimonious talking heads railing against the evils of insider trading. Sort of like Newt Gingrich tearing Bill Clinton a new one over some marital issues.
The more cynical that I become, the more I believe that catching a big gain in an individual stock is either due to blind luck or inside information, but I’m not upset at the likely prospects of the latter.
Theoretically, we all have access to the same kind of sophisticated data. We can all get our hands on different analytical tools. It’s not as if you have to go to the public library and tear out a page from the huge Value Line binder or find yourself in the position that someone else beat you to it.
Those days are gone. Every bit of information can be found somewhere and crunched on a laptop that doesn’t need to cost more than $300.
Egalitarian? You bet.
The problem, if any, is that there is a data overload, similar to what intelligence services now deal with, as so many streams of data come in, yet there aren’t enough resources to analyze the streams.
And with access to all of that data, as well as teams of research analysts toiling away in the background, we’ve all seen the equally qualified high profile technical analysts look at the same data and come up with diametrically opposing recommendations.
I know the old expression, in that’s what it takes to be a market. Basically some one has to be right and someone has to be wrong.
So consistently doing well in the market can’t be due to a sustainable intellectual process.
Dumb luck is another reasonable answer, but how random is that? Totally. That’s why it’s called luck and to believe that performance is due to luck is itself dumb.
So the only remaining alternative that can explain consistently good trading results in the markets is insider information and trading on that information.
At this moment, it’s not necessary to say that Raj allegedly had insider information. He had it. Despite what Newt says, you really do need to believe the video.
The difference is that while he had it, we wanted it.
And why didn’t we have the kind of information that Rajaratnam had?
Well, look no further than the tip of your own nose.
There’s no reason why any of us should complain about not having such information. We are each our own limiting factor.
Why could I not have gone on a path in life that would have taken me to those kinds of inner sancta? Why did I not become and then stay friends with high school classmate David Viniar who went on to become CFO at Goldman Sachs?
No one ever denied me those opportunities, I just never tried to take them. Could I have wined and dined those with the kind of knowledge that I might have found useful?
Of course I could. No one ever denied me that opportunity.
The essence of insider trading is that you had access to information that was not available to the general investing public. But really, whose fault is that? All it takes is the initiative to develop a circle of friends, confidantes and business partners. Anyone can get access to potentially helpful information.
Of course, the second part of the “crime” is that you acted on that information. Presumably if you made a profit as a result, you just might be the kind of guy that the SEC and Department of Justice may want to prosecute.
But who gets hurt when profits are made after trading on information that was never denied to anyone with the initiative to dig it out from among the avalanche of data?
And that’s because there was bound to be a loser anyway on the transaction. If anything, the Rajaratnam series of events indicates that what is so called “insider information” doesn’t even necessarily lead to profits.
Of course, I understand the concept of stacking the deck and how that may be inherently wrong. But the reality is that there is potentially an infinite number of such insider bits of data on any number of stocks occuring as a continuum.
People are always winning and people are always losing, regardless of their intellect and regardless of their connections.
While I may not have a choice in the degree of my intellect, I do have a choice in the development of the inter-personal connections that may add critical data points to the equation.
Rajaratnam hurt no one, just as a policeman recognized years ago that I had hurt no one by making that turn.
Which brings me back to yet another victimless crime on that very same street in the Bronx.
You guessed it, I made another U Turn, once again pulling my car to the curb to wait and pick up my father.
Is it a crime if no one sees it occur?
No police in sight, since it was about midnight or so. As I waited for my father, I leaned over to unlock the door, at precisely the time that a very buxomy lady of the evening was walking by. She apparantly thought that I was summoning her for some sort of service. She opened the car door, sat inside and started talking.
The words escape me now.
I was stunned. And then I saw my father coming out the door, I was really at a loss for words. He peered into the car and saw a strange enough sight, for him to give me one of his patented fist shakes that meant “you son of a gun” and he proceeded to walk to the corner to catch the bus instead of interfering with my plans for the evening.
I’m glad that officer wasn’t there that night, although I think he would have given me the same fist shake and a wink.
As he should have.