3 ms·

Only $3 million from 2 years of insider trading? They weren't doing this very well.

throwawaymath 7y ago
Actually, that's exceptionally good performance. You'd be surprised how hard it is to profit consistently even when you have advance knowledge of material earnings results. The market is fickle and lossy, and fundamental analysis is only is only one component of what the most sophisticated trading strategies do. I used to develop and sell novel earnings forecasts which would outperform analyst consensus. Typically my research would have a <1% margin of error on forecasting a specific KPI directly relevant to corporate revenue and profit for an equity. The best hedge funds were able to successfully trade on this information because they combined it with a significant amount of complementary data. But I would not want to develop a trading strategy based on that data alone. These guys did very well considering the information they had to work with and how primitive trading earnings is. The real money in insider trading is in more illiquid OTC markets, or in mergers/acquisitions.
- arkadiyt 7y ago
  Chloe Xie published a research paper [1] on exactly the topic of how hard it is to profit despite advance knowledge of earnings results. It was summarized by Matt Levine in his aptly titled "Knowing the Future Isn’t That Helpful" [2]. [1]: http://chloexie.com/pdf/ChloeXie_JMP.pdf http://chloexie.com/pdf/ChloeXie_JMP.pdf [2]: https://www.bloomberg.com/opinion/articles/2019-11-26/knowing-the-future-isn-t-that-helpful https://www.bloomberg.com/opinion/articles/2019-11-26/knowin...
  - ENOTTY 7y ago
    I also highly recommend playing the insider trading video game https://insider-trading-game.netlify.com/ https://insider-trading-game.netlify.com/
    - jannes 7y ago
      Wow, the game is literally showing Market Cap for the last quarter. Doesn't that sort of defeat the purpose of the game?
- dehrmann 7y ago
  > mergers/acquisitions This one's easy. Buy shares of the acquisition, wait for a 10%-50% pop on the news. Trading on earnings is hard. Even if you check earnings against estimates, did they beat the street? How's the forward guidance look? And you only get four shots per year.
- C1sc0cat 7y ago
  Yes if you had inside info on the current bid for Centamin (a Gold producer) that could be worth a lot.
dclusin 7y ago
There was a group of hackers in the news recently that hacked the SEC's repository of earnings reports and had advance knowledge of earnings for tons of companies. They were only able to profit 70% of the time. Matt Levine @ Bloomberg discussed it.
- dougk16 7y ago
  Profiting 70% of the time is pretty exceptional. Even with insider info like that I can't imagine anyone being able to consistently do much better. The few trading strategies I'm familiar with, you have an expectation that you probably won't even take profits 50% of the time, but that the risk/reward ratio for every given trade is at least 2:1, ideally higher. So you can profit even around 30% of the time as long you're cutting losses intelligently and only trading high-reward plays.
  - dclusin 7y ago
    Agreed 70% is fantastic. But it's surprising that having information no other trader has doesn't guarantee that you'll make money every time.
jbverschoor 7y ago
3M from 1 earnings call
elliekelly 7y ago
The guy who passed Michael Kendricks inside information did it for $10,000 and some Eagles tickets.

Actually, that's exceptionally good performance. You'd be surprised how hard it is to profit consistently even when you have advance knowledge of material earnings results. The market is fickle and lossy, and fundamental analysis is only is only one component of what the most sophisticated trading strategies do. I used to develop and sell novel earnings forecasts which would outperform analyst consensus. Typically my research would have a <1% margin of error on forecasting a specific KPI directly relevant to corporate revenue and profit for an equity. The best hedge funds were able to successfully trade on this information because they combined it with a significant amount of complementary data. But I would not want to develop a trading strategy based on that data alone. These guys did very well considering the information they had to work with and how primitive trading earnings is. The real money in insider trading is in more illiquid OTC markets, or in mergers/acquisitions.

arkadiyt 7y ago
Chloe Xie published a research paper [1] on exactly the topic of how hard it is to profit despite advance knowledge of earnings results. It was summarized by Matt Levine in his aptly titled "Knowing the Future Isn’t That Helpful" [2]. [1]: http://chloexie.com/pdf/ChloeXie_JMP.pdf http://chloexie.com/pdf/ChloeXie_JMP.pdf [2]: https://www.bloomberg.com/opinion/articles/2019-11-26/knowing-the-future-isn-t-that-helpful https://www.bloomberg.com/opinion/articles/2019-11-26/knowin...
- ENOTTY 7y ago
  I also highly recommend playing the insider trading video game https://insider-trading-game.netlify.com/ https://insider-trading-game.netlify.com/
  - jannes 7y ago
    Wow, the game is literally showing Market Cap for the last quarter. Doesn't that sort of defeat the purpose of the game?
dehrmann 7y ago
> mergers/acquisitions This one's easy. Buy shares of the acquisition, wait for a 10%-50% pop on the news. Trading on earnings is hard. Even if you check earnings against estimates, did they beat the street? How's the forward guidance look? And you only get four shots per year.
C1sc0cat 7y ago
Yes if you had inside info on the current bid for Centamin (a Gold producer) that could be worth a lot.

dclusin 7y ago

There was a group of hackers in the news recently that hacked the SEC's repository of earnings reports and had advance knowledge of earnings for tons of companies. They were only able to profit 70% of the time. Matt Levine @ Bloomberg discussed it.

dougk16 7y ago
Profiting 70% of the time is pretty exceptional. Even with insider info like that I can't imagine anyone being able to consistently do much better. The few trading strategies I'm familiar with, you have an expectation that you probably won't even take profits 50% of the time, but that the risk/reward ratio for every given trade is at least 2:1, ideally higher. So you can profit even around 30% of the time as long you're cutting losses intelligently and only trading high-reward plays.
- dclusin 7y ago
  Agreed 70% is fantastic. But it's surprising that having information no other trader has doesn't guarantee that you'll make money every time.

jbverschoor 7y ago

3M from 1 earnings call

elliekelly 7y ago

The guy who passed Michael Kendricks inside information did it for $10,000 and some Eagles tickets.