How To Make Big Money In Stocks
Do you remember Ivan Boesky? He made more than $200 million investing in stocks in the mid 1980s. He had an amazing ability to buy into a company just a few days before a big merger was announced. His profits were enormous. It turns out his prophetic abilities weren’t tied to good analysis. They were tied to insider trading tips.
Boesky was “Friends” with some of the biggest dealmakers of the day. They tipped him off to deals about to take place. Boesky made millions trading on Insider Information.
I think everyone knows the term “Insider Information.”
It’s when an investor has information no one else knows. They then try to profit from the information by trading stocks or bonds. The key here is the information. It’s from the inside . . . the normal investing public would never stumble across it.
Think of the lawyer drafting up a lawsuit against a big corporation. Or an accountant who knows his company just signed a huge new customer. Or, an Investment Banker advising a CEO on taking over another company.
Believe me, I know all about insider information.
I spent more than a decade working in Investment Banking. I was exposed to insider information every day. I guess I could have made billions with the knowledge I had . . . But I didn’t want to go to prison.
As an investment banker I’d have detailed discussions with CEOs. We’d draft up ideas for Merger & Acquisitions. We put together deals where the target would be bought out for huge premiums. I had access to CFOs. Many of which told me financial results weeks before the general public would get the information.
It would have been easy to buy a few shares here and there and make tons of money.
But I knew better. The securities industry is highly regulated. My accounts and activities were monitored. Every trade I made was reviewed. (It’s a little like being under a tax audit every day of your life.)
Now I’m not in Investment Banking anymore. But, there is a unique way to profit from the knowledge CEOs and CFOs have.
It’s a legal way to profit from insider trading.
Now let me say this. I’ll never advocate breaking the law. No need to risk your personal freedom and legal headaches for a few dollars. We can potentially profit very easily the legal way.
So what do we do?
We watch the activity of the management team. You may not realize it, but every member of management, board member, and significant shareholder is required to report their transactions. It’s the law.
Every time a CEO sells or gives away stock he needs to report it. Every time he buys stock on the open market he needs to report it. Every time he exercises stock options . . . he needs to report it.
And all of these filings are available for free online.
Keep in mind that senior management of a company knows the business better than anyone else. They know the growth potential and the risks. They know which customers are good, and which are falling behind on payments. They know what products are gaining market share. They can look ahead and plan the future of the business. Management has tremendous insight into the future of the business.
So I watch the insider trading.
Here’s an important part to this strategy. Ignore the news when an insider is selling. It could be the sign of bad things to come. Or it could be one of a hundred other reasons. It might be a businessman diversifying his holdings. He might be buying a home and need the money for a down payment. He might be putting his kids through college (that costs money too). He might even be donating shares to charity.
You’ll never really know so I ignore it all.
Instead I focus on open market purchases. Not options exercises. I’m looking for an executive using real money to buy a stock in the open market (just like you or I would). I can think of only one reason to do that, they think the stock’s going to go up.
Now, I’m out of room for today, but next time I’ll tell you where to find this information. If I have time I’ll even name a company or two where the CEOs and other insiders are buying big!
Category: Stocks
