VIEWPOINTS : Hottest ‘Insider’ Tips Are the Ones You Never Hear
With the financial pages reading more like police blotters packed with reports on insider trading deals yielding millions of dollars in profits, there is a vaulting if paradoxical public mania for the “real dope,” the “inside scoop” that produces big profits. Suddenly, a belief has seized the market that one good advance tip is worth a beach house in Malibu.
Believe that strongly enough, however, and you may be on your way to losing your bungalow in the Valley. That’s because the only good insider tips are ones that the typical investor will never hear. The “tips” on the loose among the wide investing public are artfully planted, usually by brokers and major shareholders, to pump up a company’s stock, period.
Ultimate Inside Tip
My cousin the attorney believed that he had gotten the ultimate inside stock market tip.
He heard that Mackey International Airlines, a penny stock company, had benefited from adroit international string pulling and was about to be awarded an exclusive monopoly to fly passengers between Miami and Havana.
Castro himself had approved the deal, the whisperers said. Expatriate Cubans in Florida supposedly were already lining up to buy tickets on the strength of the rumors.
By the time my cousin got into the stock, it had risen from its customary 37 1/2 cents a share to $1.50, but it was still a bargain. Once the contract was officially announced, the stock was expected to explode past $10.
Of course, it never did. The proposed flight service to Cuba was abruptly scuttled when Mackey International’s offices were bombed, apparently by an anti-Castro group. That sent the stock to near its historic lows. My cousin lost almost enough on this one tip to buy a used Lear jet.
A former employee of an investor relations firm I once owned, which handled stockbroker and shareholder inquiries, had another great insider tip.
A broker who made regular calls to us passed along the scoop that a certain military contractor, a financial midget with a balance sheet that only a mother could stomach, was about to win a multimillion-dollar, multiyear Defense Department contract for high-profit widgets.
It made sense. The company had a reputation for good products, hindered only by bad fiscal management. A giant contract would bail the company out, and it probably could deliver. My employee plunged for several thousand shares at a couple of bucks apiece.
He never wondered where the broker picked up this tidbit. That was odd, since our business was putting a high gloss on our clients’ prospects in conversations with brokers. We did not lie to brokers, never exactly, but we certainly looked at the world with the rosiest glasses.
Stingily Holding Out
Of course, the defense firm never got the contract, although it had made a bid, and the stock continued to sink from between $3 and $4 until it rested at an even 25 cents per share.
Nowadays, I still do investor relations for several publicly traded companies. Friends frequently believe that I am stingily holding out the “good stuff,” but even at this comparatively high level in the information hierarchy, there is no “good stuff.”
When I started in the business years ago, a client gave me a practical piece of advice: Never trade in our stock. He also shielded me, as all my clients have, from the really juicy insider information, available to, at most, the top five or six executives in any company, large or small.
By the time news leaks beyond that level, it ceases to be controllable and instantly passes into the public domain, where its wide distribution precludes substantial profit taking.
A few pennies might be made on a day’s advance notice of a huge contract or unexpectedly high quarterly profits, but these are not the news flashes that yield overnight riches.
The sad truth is: There are no insider tips worth listening to. The rampant but ill-advised quest for the good insider dope persists not because the system works, but because most stock market players--including corporate executives and brokers--are incurable optimists.
Not unlike race track degenerates who pass years in quest of advance word on a fixed race, hard-core market enthusiasts share an unbreakable conviction that the big hit is just a whisper away.
A word to the wise to these stock market aficionados is that most habitual horse players cross life’s finish line penniless. And those guys, unlike insider traders, aren’t even running the additional risk of winning an all-expenses-paid vacation in a federal penitentiary.
