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Posted: 9 June 2011 - 7 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

What is the role of the Investor Activist  group on tickertalk. What should it be? And how to get there?




I sense that many of the people who expressed a conceptual support for the group by joining it may not have the time , focus, or knowledge to take the notion of activism on to a point where they can add value either to their own, or to the wider public's, investment process  


One person who has shown that he can and is willing to make a difference is Theo Botha


Theo is aware of tickertalk, and says he can offer a short talk to a tickertalk audience on the matter of investor activism.







And on the topic, evergreen market watcher and occasional cynic Michel Pireu probes the wisdom of masking the price discovery which unfettered inside trades could foster.


In his column Street Dogs  in today's Business Day he sets it out as follows:-


"EARLIER this year, after a spat of revelations of insider trading on Wall Street, John Tammy, an economic adviser to HC Wainwright, came out against a practice that he argued, rather than creating a level playing field, was harming the economy and investors. "Ultimately," he said, "to ban insider trading is to block the use of the very information necessary for markets to function properly."
Tammy’s argument goes something like this:
1. What is insider trading? There is no clear definition. Most presume that insider trading is a simple act that involves investing based on nonpublic information, but as University of Chicago professor Daniel Fischel noted in his book Payback, "Neither the SEC, Congress, nor the courts have yet … been able to define what constitutes insider trading."
2. Those who have the most accurate information about companies are company employees and executives, and there are no laws keeping them from buying or selling their shares. In that sense, the notion of insider trading is a misnomer. "... those closest to the businesses are, as shareholders, presumably trading on knowledge not held by the general public."
3. Much as fish need water to survive, and politicians need money, investors can’t exist profitably without information. "Investors, institutional investors in particular, must achieve credible returns in order to stay in business," says Tammy. "Acting in their logical and rational self-interest, they pay for an information edge. Some would view this in a sinister light … but saner minds might acknowledge that the pursuit of quality information is merely a good business practice. It should not be considered scandalous."
4. It’s not clear how a ban on nonpublic information helps the small investor. For one, the sooner good news is priced into shares, the better off they are. Similarly, assuming the existence of unfortunate information that is nonpublic, how is the small investor advantaged by buying shares of a company whose stock price does not reflect the bad news? Better to allow all good and bad information to affect share prices.
5. Arguably the main reason that governments should encourage insider trading has to do with economic growth. To put it simply, we live in a world of limited capital, and insider trading ensures that share prices will reach fully informed levels as quickly as possible. To the extent that market altering information is kept from reaching the marketplace, capital is wasted, diverted, or destroyed. The better policy is to encourage market sleuthing and information edges that ensure the most efficient allocation of investment.
Tammy concludes that, "even assuming the unlikely — that governments and courts could ever successfully define what is vague — insider trading, despite media- driven efforts to demonise it going back to the 1980s, is a good thing. Indeed, to ban insider trading is to block the flow of information, and that ensures poorly priced markets that logic tells us would repel, rather than attract, investors. Investors need quality information to inform their decisions. To criminalise their pursuit of information which leads to better pricing is not just anti-capital formation, it retards growth."


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