4 ms·

Do you have examples? In my own personal experience, people are most often mistaken about what is insider trading due to a combination of a vague sense of unfa

by ksdale 7y ago

Do you have examples? In my own personal experience, people are most often mistaken about what is insider trading due to a combination of a vague sense of unfairness and a lack of background knowledge about the reasons for insider trading laws and the exact harm those laws are designed to prevent. Matt Levine has written extensively about this and it's all quite interesting!

JaimeThompson 7y ago
There have been some rather weird price moves in some stocks relating to various congressional committees apparently tipping off people before the info was publicly released. While I can't find it right now I recall studies that showed that the typical return on a Senator's investments was at least 11% greater than would be expected which is a data point to take into consideration. I do agree it is all very interesting and will read more of his works when I have time.
- ksdale 7y ago
  That's an excellent example! Thank you.
- IAmEveryone 7y ago
  So... Congressmen are paying lobbyists to lobby... congress?
  - inscionent 7y ago
    More, congress and their friends like to make side money.
- spoonie 7y ago
  Wasn’t this specifically made illegal back in 2012? https://en.m.wikipedia.org/wiki/STOCK_Act https://en.m.wikipedia.org/wiki/STOCK_Act
lordnacho 7y ago
> Do you have examples? Stock buybacks used to be illegal, until they weren't. Very relevant in the current market. Not insider trading as such, but a form of manipulation that one might consider related. https://mavenroundtable.io/theintellectualist/news/stock-buybacks-were-once-illegal-why-are-they-legal-now-sHh6HZjtyk2styG-qLgnQg/ https://mavenroundtable.io/theintellectualist/news/stock-buy...
- airstrike 7y ago
  Many things were illegal until they weren't, but we don't go around suggesting there's a nefarious reason behind their legality. The really honest argument is that buybacks are taxed in a special manner, and this difference between taxes on income and taxes on capital gains is what's really driving income inequality in the U.S.
- ksdale 7y ago
  Thanks for the pointer! It seems... symmetrical(?) that if corporations can sell stock, they should be able to buy it back. It's not a whole lot different from a dividend in practice, it's just cash flowing from the corporation to the owners of the corporation. The commentary on that article about not investing back into the company isn't particularly convincing, to me anyway, just because there are lots of times that its better for anyone but the company to have the cash, especially if the company can't think of anything better to do with it than buy back their own stock. And it's not like the money disappears in a puff of smoke, presumably the shareholders reinvest the proceeds. I'm sure my analysis is naive and missing something, but on first glance, this doesn't strike as a problem anywhere near as bad as insider trading.
  - airstrike 7y ago
    Nope, you're absolutely right. The main difference between stock buybacks and dividends are the tax implications – and what they signal to the market. Dividends tend to be "sticky" since changing them all the time gives investors little certainty over what they should expect to receive (and if there's anything investors like is certainty) Buybacks signal management (a) has no better source for capital and (b) probably thinks the stock is currently undervalued (i.e. it's a good time to buy back cheap shares). Companies very often do not have projects to invest with a return higher than their cost of capital, and any reasonable CFO who finds themselves on that position should pay back its equity holders who risked their money by investing in this company with a given expectation on returns

by ksdale 7y ago

JaimeThompson 7y ago

There have been some rather weird price moves in some stocks relating to various congressional committees apparently tipping off people before the info was publicly released. While I can't find it right now I recall studies that showed that the typical return on a Senator's investments was at least 11% greater than would be expected which is a data point to take into consideration. I do agree it is all very interesting and will read more of his works when I have time.

ksdale 7y ago
That's an excellent example! Thank you.
IAmEveryone 7y ago
So... Congressmen are paying lobbyists to lobby... congress?
- inscionent 7y ago
  More, congress and their friends like to make side money.
spoonie 7y ago
Wasn’t this specifically made illegal back in 2012? https://en.m.wikipedia.org/wiki/STOCK_Act https://en.m.wikipedia.org/wiki/STOCK_Act

lordnacho 7y ago

> Do you have examples? Stock buybacks used to be illegal, until they weren't. Very relevant in the current market. Not insider trading as such, but a form of manipulation that one might consider related. https://mavenroundtable.io/theintellectualist/news/stock-buybacks-were-once-illegal-why-are-they-legal-now-sHh6HZjtyk2styG-qLgnQg/ https://mavenroundtable.io/theintellectualist/news/stock-buy...

airstrike 7y ago
Many things were illegal until they weren't, but we don't go around suggesting there's a nefarious reason behind their legality. The really honest argument is that buybacks are taxed in a special manner, and this difference between taxes on income and taxes on capital gains is what's really driving income inequality in the U.S.
ksdale 7y ago
Thanks for the pointer! It seems... symmetrical(?) that if corporations can sell stock, they should be able to buy it back. It's not a whole lot different from a dividend in practice, it's just cash flowing from the corporation to the owners of the corporation. The commentary on that article about not investing back into the company isn't particularly convincing, to me anyway, just because there are lots of times that its better for anyone but the company to have the cash, especially if the company can't think of anything better to do with it than buy back their own stock. And it's not like the money disappears in a puff of smoke, presumably the shareholders reinvest the proceeds. I'm sure my analysis is naive and missing something, but on first glance, this doesn't strike as a problem anywhere near as bad as insider trading.
- airstrike 7y ago
  Nope, you're absolutely right. The main difference between stock buybacks and dividends are the tax implications – and what they signal to the market. Dividends tend to be "sticky" since changing them all the time gives investors little certainty over what they should expect to receive (and if there's anything investors like is certainty) Buybacks signal management (a) has no better source for capital and (b) probably thinks the stock is currently undervalued (i.e. it's a good time to buy back cheap shares). Companies very often do not have projects to invest with a return higher than their cost of capital, and any reasonable CFO who finds themselves on that position should pay back its equity holders who risked their money by investing in this company with a given expectation on returns