Long-termSTRATEGY

Is a Strategy that Follows Insiders Worth While?

By Matt Blackman

Insiders have had their share of bad press lately. But hundreds of insiders file documents to legally buy and sell shares in their own companies on a daily basis. Can this information help you decide when to buy and sell?

On December 1, 1986, Ivan Boesky was featured on the front cover of Time Magazine. Normally, this would be considered an honor but the publicity was not something that warranted bragging rights. The magazine featured a headshot of Boesky wearing an expensive suit and broad smile with a caption that read “Investor ‘Ivan the Terrible’ Boesky, Wall Street Scam – Making Millions with Your Money.”

Inside Notoriety

He had been charged with unlawful insider trading. In a quote that was to become famous, Boesky said of his conduct, “I think “immoral” is probably the wrong word to use…I prefer the word “unethical”.” Federal authorities were less philosophical and called it “illegal.” The court agreed. He was sentenced to 22 months in jail and ordered to pay a $100 million fine.

His arrest marked the end of an era of sorts. Until that time authorities seemed to turn a blind eye to the practice of reaping huge rewards with information not available to the public. Marty Siegel and Michael Milken were other casualties in the government’s attack on those using privileged information for profit. No longer would the practice of using privileged corporate inside information before it was available to the rest of the market be tolerated.