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Modern financial theory does not take into account the insider's information. If based on his inside knowledge he believes he can make 100%+ in a year, it woul
by dennisgorelik 15y ago
Modern financial theory does not take into account the insider's information.
If based on his inside knowledge he believes he can make 100%+ in a year, it would be silly to diversify that investment into other stocks with less than 10% yearly return.
On the other hand if his inside knowledge is telling him that company is going to file for bankruptcy protection in the next couple of years - it makes sense to sell all his holdings ASAP.
- byrneseyeview 15y agoIt does. There's a whole lot of research into how insider information propagates, and what the ideal portfolio strategy is given such information. But it's like any other edge. It can still make sense to diversify. That's empirically true; even Boesky put most of his money into stuff he didn't have an insider edge in. In this case, it all depends on what kind of edge Lefkofsky has, what kind of liquidity discount he's willing to deal with, whether he and his investors have different time preferences, etc. It would be truly odd if the rise of the fastest-growing business in history and the rise of the first fairly liquid pre-IPO market and a massive increase in the US money supply didn't lead to this kind of change in investor and founder behavior.