Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Biotech / Medical : HBOC...Buy in here? -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (138)	7/16/1998 11:58:00 AM
From: andy kelly	Read Replies (1) \| Respond to of 341

Chuzzlewit I agree completely with your sentiment about the playing field not being level. The internet and message boards such as SI have gone a long way toward leveling but it would be naive to believe that we were not still at a disadvantage. We all know this and accept it as a current fact but should also keep bitching and organizing until the tide for change can not be denied. Andy

To: Chuzzlewit who wrote (138)	7/23/1998 11:50:00 AM
From: Geoff Nunn	Read Replies (2) \| Respond to of 341

Chuz, it's true the playing field isn't level but I'm less concerned about it than you are. Small investors can still do well even if the playing field isn't level. If the small guy invests for the long haul, and follows a buy and hold strategy, then I don't see that insider trading hurts or helps him, or is even relevant. The effect of insider trading is to cause stock prices to adjust more rapidly to their justified intrinsic values, not to make them permanently higher or lower. This improved pricing of stocks not only doesn't hurt the small investor, it actually provides a benefit. 1. Studies show that the average annual historical return on the stock market is about 10% per year. Adjusted for inflation that's a real return of about 6-7% per year -- and a very good return by any reasonable yardstick! Whether insider trading exists or not, any investor who held a broadly diversified portfolio such as an index fund could have obtained this return. The 10% return would not have been higher or lower if insider trading laws had been more vigorously enforced. Insider trading is an issue of fairness and equity, not efficiency. If you punish violators of insider trading laws, you don't make corporations more productive or efficient. The stock market wouldn't have performed any better historically if there had been a crackdown on insiders. 2. Actually, a vigorous campaign against insider trading could backfire and make things worse for the small investor. The effect of insider trading is to cause stock prices to adjust more rapidly to their intrinsic levels. This protects small investors. Let me offer an example. Suppose I purchase HBOC today. I will be far more comfortable about that purchase if all relevant information concerning HBOC is in the market. The danger would be if some negative info about HBOC isn't in the market, in which case the stock is overpriced. If insiders have negative info on HBOC, they do me a favor by acting on that information. That drives the price down to its intrinsic value, and protects me from paying too much for it. When prices reflect the underlying intrinsic values, the market is said to be efficient. In such a market uninformed investors have the same opportunity as anyone else. If you crack down on insiders, stocks will become mispriced. In this inefficient market small, unformed investors can expect to do poorly. The advantage will shift to investors that have the most information, the pros on Wall Street. In an ideal world small investors would have the same chance for success as everyone else. Because insiders will always do better than anyone else, that's an unattainable ideal. The closest we can get to that ideal is to have an efficient market. Insiders will still do better than others, but at least the small, uninformed investor will be protected from buying overpriced stocks. I see a lot of equality of opportunity in that. If you vanquish the insiders you will destroy an element of equality that currently exists. JMHO Geoff