Market Indicators: The Best-Kept Secret to More Effective Trading and Investing

Chapter 11. The Insiders

	All animals are equal, but some animals are more equal than others.
	--—GEORGE ORWELL, in Animal Farm

	As I grow older, I pay less attention to what men say. I just watch what they do.
	--—ANDREW CARNEGIE, the world's richest man of his time

They may or may not be good investors, but the people who run a company certainly have a better view of its future than the rest of us do. These stewards of capital may not be fortune-tellers, but the fog of uncertainty that surrounds a company's future is a little thinner for them.

As long as there have been markets, traders have taken advantage of insider knowledge. In the market's early days, most members of the public didn't buy stock. They felt the game was rigged, dominated by a few elite participants who used their superior access to information to swindle the masses. The problem came to a head after the 1929 stock market crash, when the public had become heavily invested in the market and had lost much of its savings. Reports of backroom deals surfaced, suggesting that corporate leaders and their associates used insider information to line their pockets.

The Securities and Exchange Commission (SEC) formed in 1934 as a response to the crash and the unfair advantages that insiders held. It became illegal to buy or sell securities based on "material and nonpublic" information. Over the last seventy-five years there has been debate over what "material" and "nonpublic" means from a legal perspective, but the general ...