This is a list of insider transactions for CSCO available on Yahoo finance. As you can see there are 16 sales and no purchases in the last 6 months by insiders. This is public information and you can trade on it if you wish. There are many reasons an insider may choose to buy or sell his stock so trading on this info alone is by no means a slam dunk way to profit.
What point are you making? I've said several times that the average investor can only speculate on insider transactions, while insiders can make trades based on actual, material information.
Why shouldn't he? Libertarians don't particularly care about legal. They care about lawful.
Why shouldn't he?
Libertarians don't particularly care about legal. They care about lawful.
Explain to me how the situation I described is fair to all investors. Additionally, explain to me how higher costs of capital would be beneficial to an economy. Finally, please explain to me how in an economy that uses gold as money (which is what you all dream of), it would be best if a select few could make excess profits at the expense of many.
Sounds like tyranny to me.
M1ThinkTank:If it relies on "intrinsic value" then it is invalid. Value is subjective. Yes, it is subjective, in the sense that it is an estimate of intrinsic value. The fact remains that investors are trying to accurately estimate a stock's intrinsic value, which, again, is the price you would pay for the stock if you had all information about that company's future cash flows.
If it relies on "intrinsic value" then it is invalid. Value is subjective.
Yes, it is subjective, in the sense that it is an estimate of intrinsic value.
The fact remains that investors are trying to accurately estimate a stock's intrinsic value, which, again, is the price you would pay for the stock if you had all information about that company's future cash flows.
There is no such thing as intrinsic value, so trying to estimate it is a complete waste of time.
You do not understand subjective value theory, and certainly not praxeology if you think that people could know a price based on perfect information.
There is no such thing as intrinsic value, so trying to estimate it is a complete waste of time. You do not understand subjective value theory, and certainly not praxeology if you think that people could know a price based on perfect information.
You don't understand basic time-value of money concepts if you don't understand how having perfect information would affect the price of a stock.
M1ThinkTank: Why shouldn't he? Libertarians don't particularly care about legal. They care about lawful. Explain to me how the situation I described is fair to all investors. Additionally, explain to me how higher costs of capital would be beneficial to an economy. Finally, please explain to me how in an economy that uses gold as money (which is what you all dream of), it would be best if a select few could make excess profits at the expense of many. Sounds like tyranny to me.
I asked you to back up your claim. Why shouldn't he? Explain how what he is doing is wrong and why or retract your statement.
I don't have to back up a claim, because I didn't make one. Shifting the burden of proof to me is poor argumentation.
M1ThinkTank:You don't understand basic time-value of money concepts if you don't understand how having perfect information would affect the price of a stock.
What is the value of time?
"In fact, if you had actually read the thread, the debate is about whether or not insider trading should be legal. So the real question is, should Insider Joe be able to buy tons of shares from Average Investor Bob at a discount because Joe knows the company is about to buy some prime commercial real estate?"
Hell, that's even worse. Now you're saying the argument is about whether or not Billy Enterprise should be ALLOWED to lease land for his restaurant simply because of certain thoughts in his head. That isn't eerie at all.
Seriously, break it down to a transaction. If I go to a thrift store and see something that is worth a cool grand being sold for five dollars, what makes me the bad guy for picking it up and selling it on eBay? I mean, the first assumption in what you are saying is that the person buying the stocks has enough faith in the investment the company is going to make that he is willing to bet on an increasing value in the holdings. And look at it the other way around. If it is only morally sound that those who do not have inside information are able to profit from the purchase of stocks, first and foremost are we to then investigate everyone who makes a good investment? What if they have a room with newspaper clippings and footage of executives they've been stalking and listening in on, trying to get a good lead?
I asked you to back up your claim. Why shouldn't he? Explain how what he is doing is wrong and why or retract your statement. I don't have to back up a claim, because I didn't make one. Shifting the burden of proof to me is poor argumentation.
I've backed up my claim a million times in this thread. I'm not going ot redo it for you. If you want to argue against my premises, I'll do that.
I'm not going to explain rudimentary financial concepts to you. There are countless resources available.
Hell, that's even worse. Now you're saying the argument is about whether or not Billy Enterprise should be ALLOWED to lease land for his restaurant simply because of certain thoughts in his head. That isn't eerie at all. Seriously, break it down to a transaction. If I go to a thrift store and see something that is worth a cool grand being sold for five dollars, what makes me the bad guy for picking it up and selling it on eBay? I mean, the first assumption in what you are saying is that the person buying the stocks has enough faith in the investment the company is going to make that he is willing to bet on an increasing value in the holdings. And look at it the other way around. If it is only morally sound that those who do not have inside information are able to profit from the purchase of stocks, first and foremost are we to then investigate everyone who makes a good investment? What if they have a room with newspaper clippings and footage of executives they've been stalking and listening in on, trying to get a good lead?
I never said anything about Billy Enterprise not being allowed to lease land for his restaurant.
As for the thrift store, again, apples to oranges. I've explained several times why this is so.
And no, we don't investigate everyone. Even if we did, newspaper clippings = public information. As for following around executives to steal information, that is currently illegal. However, it is unlikely that, unless you are an insider (a high ranking employee), that you will be able to discover any material information because you will not be close enough to the executives when they are actually discussing it. They're not going to be discussing sensitive corporate material at Outback Steakhouse.
Company A decides to acquire company B. Company A hires an outside company to handle the paperwork involved in the acquisition. A lawyer or an accountant for this outside company tells his brother in law about the impending acquisition. His brother in law buys all the stock he can in company B, maybe he tells a few friends who tell a few friends. Soon company B's stock soars forcing company A to pay a much higher premium for the acquisition. Maybe company A backs out. Of course brother in law is privy to this information so he liquidates his stake at a premium. Maybe company A goes ahead with the M&A and brother in law and all the other stock holders of company B are rewarded. The question is. Is this a fraud or some other criminal activity? Yes. Company A didn't get big enough to acquire company B by being stupid. They would have made the third party company sign a non disclosure agreement. The big question is. Do we need the SEC or FBI to enforce or investigate these civil matters? Under our present system,Yes.In a system void of government intervention Company A would still have to hire a Private Investigating firm to fill this role.
They can buy all the stock that they want in Company B, but it wouldn't really affect the acquisition. Acquiring a company by buying shares on the open market is usually a last ditch effort in a hostile takeover. Generally, Company A is going to offer a price per share, based on how much they believe the future cash flows of Company B will be. They don't care what the market price of the stock is. They will make an offer, and the shareholders can either take it or leave it.
If the people you described buy the majority of the shares and reject the acquisition bid, they will be the ones holding all the stock when the acquiring company moves on. If the stock price was inflated based on news of the acquisition, bad news for them.
They can buy all the stock that they want in Company B, but it wouldn't really affect the acquisition. Acquiring a company by buying shares on the open market is usually a last ditch effort in a hostile takeover. Generally, Company A is going to offer a price per share, based on how much they believe the future cash flows of Company B will be. They don't care what the market price of the stock is. They will make an offer, and the shareholders can either take it or leave it
The shareholders aren't about to accept an offer lower than the market price of their stock. You're right Company A will submit an offer to purchase but no one will take it seriously if they can sell their shares on the open market for more.
How does one measure the intrinsic value of a stock? Isn't the method of measurement subjective?
I believe if you understood subjective value theory and the implications of it, you would change your mind about the concept of intrinsic value.
Any asset is worth only what the highest bidder is willing to pay. You can study charts and pe ratios till you get brain freeze. Mr Market sets the price and he can be one irrational SOB. At one time the ground under the Imperial Palace in Japan was worth more than the entire state of California. Of course if Fanny or Freddie had it on their books it would still be worth that much since they trashed Mark to Market accounting.
You made the case that investors could make a profit by bidding up the price of a stock in anticipation of a takeover, essentially adding a "merger speculation premium" to the price of the stock. I made the point that Company A won't pay this premium, so the investors that bid up the price above Company A's offer will lose.
The fact is, if there is a premium built into the stock price based on speculation about the merger, then all stockholders will not be able to sell their shares at a price above the bid price. No one will buy the stock from them at the inflated price if a potential acquirer is offering less for the company. This is even moreso since the inflated price is based on the cash flows expected from the acquisition, not the cash flows expected from the company itself.
How does one measure the intrinsic value of a stock? Isn't the method of measurement subjective? I believe if you understood subjective value theory and the implications of it, you would change your mind about the concept of intrinsic value.
Yes, the measurement is subjective, but intrinsic value is not. Investors try to estimate intrinsic value, which is the price that a stock would trade for if you knew everything about the stock's future cash flows. There is no disputing this, no matter how many times the broken record of 'subjective value theory' is played.
As an example, imagine two stocks for which we have perfect information about all future cash flows (we know their intrinsic values). Stock X will pay owners $10/share in dividends for eternity, the Stock Y will pay $5/share in divfidends for eternity. If average investors wanted a 10% ROI, they would pay $100 for Stock X and $50 for Stock Y. To pay more for either would be stupid.
If average investors owned both stocks, and Stock X was trading for $120 while Stock Y was trading for $40, then they would sell X to buy more of Y. This is because X is only earning 8.33% per share while Y is earning 12.5% per share. Buying and selling would occur until both stocks were earning the same ROI. Who would willingly hold a stock that is earning less in a case where all future cash flows are known and certain?
M1ThinkTank: How does one measure the intrinsic value of a stock? Isn't the method of measurement subjective? I believe if you understood subjective value theory and the implications of it, you would change your mind about the concept of intrinsic value. Yes, the measurement is subjective, but intrinsic value is not.
Yes, the measurement is subjective, but intrinsic value is not.
@Joe, it is like talking to a wall. He is bound and determined to cling to his logical errors.
Point them out.
"I never said anything about Billy Enterprise not being allowed to lease land for his restaurant."
No, see, you did but you apparently don't realize it. That may be the fundamental problem here. You are making the claim that because there is something inside someone's brain that other people cannot access, it ought be illegal for them to act on it. It's a really bad precedent. What will you do about the person who thinks the restaurant they are working for is on the path to success? Will you prevent them from opening their own franchise, just because they have insider information? You really don't see the logical connection there? Really? Pfui.
"As for the thrift store, again, apples to oranges. I've explained several times why this is so."
No, you're just saying that it makes a difference whether or not the information is easily accessible. How will you define the law that outlaws insider trading with loosely worded vocabulary like "easily accessible"? Who gets to make that distinction? What about that fact that sometimes things are easier to learn because some people are more clever than others? "Easy" is situational.
", newspaper clippings = public information. As for following around executives to steal information, that is currently illegal. However, it is unlikely that, unless you are an insider (a high ranking employee), that you will be able to discover any material information because you will not be close enough to the executives when they are actually discussing it. They're not going to be discussing sensitive corporate material at Outback Steakhouse."
Does the same information get printed in every newspaper? What about the people who didn't get the right newspapers? Are the people who did now guilty of "insider trading?" I mean, you know that buying stock in a company you work for is still a risk, even if you know what the company's future plans are, right? You are aware of that? If it wasn't a risk, then every single time a company announced that it was going to do ANYTHING, everyone would buy stocks in that company. You're talking about "playing fair" while completely disregarding the risk factor.
You should at least try to explain how it hurts anyone to trade with inside knowledge. You seem to think that the people selling stocks to someone knowledgeable are being taken for a ride, but isn't it their fault for making a bad investment? Isn't it their fault for believing that money NOW is better than having faith that the stock will grow? And what if they're selling it because the company seems to be failing? What if the guy buying is just an idiot, without the capacity to really understand why buying stocks right now is a bad idea? Are the people selling those stocks just taking advantage of his ignorance?
Intrinsic value is set by the market. As I said before Mr Market can be one irrational SOB. You buy a house in South Florida in 05. In 06 you have no equity in the house you paid 350k for. But now it appraises for 400k. That's what you can sell it for that's it's intrinsic value. You go to the bank and ask for a second mortgage for 25k. No problem. 2010 your 350k house appraises for 200k you go to the bank and they lock the door before you get inside. What's changed?, same house same piece of land. You did due diligence before you bought it. In 05 you could have rented the house for more than your mortgage payment. Today you can't.
It's only a bubble if it pops.
Intrinsic value is subjective.
Fore sight is speculative.
Hind sight is 20/20
You buy a REIT in 05 , you do your due diligence. It has mall properties in S Florida. It pays a good dividend has a great cash flow and owes less money than it's assets are worth.Flash ahead to 09 Holy Crap same REIT same properties no dividend negative cash flow it owes more than the properties are worth. Why is it's intrinsic value so much less?
Bill Smith:Intrinsic value is set by the market.
Bill Smith:Mr Market can be one irrational SOB.
Bill Smith:That's what you can sell it for that's it's intrinsic value.
Bill Smith:Intrinsic value is subjective.
Where do you people come from? Why would you come to an economics website and assert all of this rubbish?
I'm asking you to defend this concept of intrinsic value. Not to assert it's existence. Can't I just as easily say that the intrinsic value of a stock is $1000? What would make me wrong, and others right?
No, you couldn't just create an intrinsic value. What makes you wrong is that , with intrinisc value, all future cash flows are known and certain. For you to speculate that known and certain cash flows would somehow be different would be foolish.
Also, you would have to accept the market's discount rate on the stock. You could demand a higher rate of return all you want, but the market as a whole will not sell you the stock at a discount.
I understand your example. It doesn't describe what intrinsic value is. It doesn't even address it.
Actually, I defined exactly what intrinsic value is. It is the price that the stock would trade at if all future cash flows were known and certain. Where's the hole in that definition?
Do you not see that there is no such thing as "intrinsic value", but rather a plethora of subjective valuations that determine the market price? On the whole, investors aren't trying to "measure the intrinsic value" as a final ends. In the grand scheme of things they are trying to maximize their own profit. Maybe some try to measure what they believe is intrinsic value as a strategy. They're chasing a ghost.
There is definitely something called intrinsic value. The subjective valuations that you are talking about are people's esimation of intrinsic values. Also, investors maximize their profits by estimating intrinsic value better than the market does.
As for your content about measuring intrinsic value, no one can measure it, they can only estimate it. By trying to estimate it, they are not chasing a ghost. They are trying to see if the stock they are looking at is worth purchasing.
What bothers me here is that you claim that all activity on the stock market is based on people and institutions trying to find the intrinsic value of a stock. All it takes is one person who isn't looking for the intrinsic value of a stock to destroy your argument. I'm pretty sure people have traded based on criteria other than what you have proposed. Are people who use the elliot wave trying to find intrinsic value? How about algo traders or HFTs? I don't think that they are trying to trade based on some kind of intrinsic value. I think the majority of market participants are trading based on the belief that their strategy will be profitable overall, and that it has nothing to do with the notion intrinsic value. Some of those strategies include anticipating the moves of other buyers and sellers in the market.
How do hedge funds anticipate the moves of other buyers and sellers? On a whim? There has to be some evaluative criteria. You say that their strategy is to anticipate the moves of the other buyers and sellers in the market without providing how they make those guesses. The OP should give you a hint, since it is about hedge funds getting busted for trading on inside information.
Like it or not, over the long haul, the people who are best at estimating intrinsic value will make the most money. For practically every stock, those people would be insiders.
Now, there may be some investors such as the ones you describe. I won't deny that. I don't see why they should be the ones who are catered to.
How are they being catered to? If anyone is being catered to, in the case of legalized inside trading, it would be the insiders.
M1ThinkTank:There is definitely something called intrinsic value. The subjective valuations that you are talking about are people's esimation of intrinsic values. Also, investors maximize their profits by estimating intrinsic value better than the market does.
You're still arguing by assertion. You haven't proven intrinsic value. Can you prove the intrinsic value of anything?
I agree and I quit.
You suck at understanding insider trading. You're comparing a guy who comes up with a great idea who earns a profit, to a guy who found out that the company he manages will need to file for bankruptcy. One produced an idea, and benefited. The other one was handed an idea on a silver platter, and benefited. It wouldn't take a rocket scientist to know that you should sell as much stock as possible, and even buy put options while you were at it.
Again, you suck at understanding insider trading. Explain to me how someone who has access to information is more clever than someone who doesn't. How is access to information = investing acumen?
Again, you suck at understanding insider trading. First, once it is in the newspaper, it is public. Besides, companies typically have to do press releases about material information, and those press releases that are available at countless online financial sites. If you didn't read it, tough luck. That is much different than the information only being known by a handful of shareholders, not available to the public by any means.
Second, yes, buying stock in any company is always a risk. I never said it wasn't, but you can't deny that it is less risky to trade with inside info. Also, the reason that employees don't run out and buy the stock every time they have inside info is because it is illegal. It doesn't matter if you are the CEO or the janitor.
You should at least try to explain how it hurts anyone to trade with inside knowledge. You seem to think that the people selling stocks to someone knowledgeable are being taken for a ride, but isn't it their fault for making a bad investment?
Yes, they are being taken for a ride. How is it their fault that they are selling the company for what they feel is a fair price based on available information, when the insider is buying it from them at pennies on the dollar because they are privy to other information? They are making the best decision they can with the information they have. The only problem is, insiders have better info, and profit as a result.
Isn't it their fault for believing that money NOW is better than having faith that the stock will grow?
Again, no. They wouldn't sell unless they felt they were getting a fair price based on what they knew about the company. To say that they should have held onto the stock because of "faith" is terrible advice.
And what if they're selling it because the company seems to be failing?
OK, so they sell because public info leads them to believe it is failing. Insiders know that they just secured a patent, which will boost profits for years to come. Yet again, the average investor made the best decision he could with the info that he had, but he may not have made that decision to sell had he been informed about the patent.
What if the guy buying is just an idiot, without the capacity to really understand why buying stocks right now is a bad idea? Are the people selling those stocks just taking advantage of his ignorance?
I'm not concerned with the trading activities of an idiot. However, your idea earlier that an investor should hold onto a stock based on faith, regardless of their evaluation of the company's worth, would be idiotic.
I already did. If you knew for certain that a stock would pay a $10 dividend forever, and the discount rate in the market was 10%, then the intrinisic value of the stock would be $100.
Point out the flaw.
I've given you the widely accepted definition of intrinsic value as it applies to stocks. I've even given you examples.
You disagree with the definition, because it doesn't fit your argument. So you quit.
How convenient.
The only thing known and certain is today's value and past performance. Unless you can produce a crystal ball that can accurately predict future cash flows and market circumstances, I'll stand by my assertions follish as they are.
Warren Buffet is credited with being an expert at figuring intrinsic value and buying under priced assets.
Warren's Wells Fargo Bank would be bankrupt if not for Gov bailouts.Don't worry you don't need to loan him your wiji board he's to big to fail. Wells Fargo can pencil in any valuation they please without mark to market regulations therby perverting any attempt to to figure intrinsic value.
The only thing known and certain is today's value and past performance. Unless you can produce a crystal ball that can accurately predict future cash flows and market circumstances, I'll stand by my assertions follish as they are. Warren Buffet is credited with being an expert at figuring intrinsic value and buying under priced assets. Warren's Wells Fargo Bank would be bankrupt if not for Gov bailouts.Don't worry you don't need to loan him your wiji board he's to big to fail. Wells Fargo can pencil in any valuation they please without mark to market regulations therby perverting any attempt to to figure intrinsic value.
Yes, the only thing that is certain is what has happened. It doesn't change that intrinsic value if what the price of a stock would be IF all future cash flows were certain and known.
It wouldn't matter what anyone did with their financial statements, mark-to-market or otherwise, IF all future cash flows were certain and known.
M1ThinkTank:If you knew for certain that a stock would pay a $10 dividend forever, and the discount rate in the market was 10%, then the intrinisic value of the stock would be $100.
So the intrinsic value of a stock (or anything?) stems from what YOU think you know for certain? There are people who are certain they're Napoleon.
Z.
I think this thread had something to do with insider trading. IF all future cash flows were certain and known. I guess it doesn't matter. I bow to your persistance and irrefutable logic.
So the intrinsic value of a stock (or anything?) stems from what YOU think you know for certain? There are people who are certain they're Napoleon. Z.
LAST TIME: Intrinsic value is the value of a stock if all future cash flows from that stock were certain and known.
THEREFORE: If it is known and certain that a stock will pay a $10 dividend forever, and the discount rate in the market was 10%, then the intrinisic value of the stock would be $100.
AGAIN: There is no "think I know" or "believe" about the future cash flows of the company. They are known and certain to all investors.
I think this thread had something to do with insider trading. IF all future cash flows were certain and known. I guess it doesn't matter. I bow to your persistance and irrefutable logic
Bill,
You're right, the thread does have something to do with insider trading. The only problem is, people keep moving the goal posts, that's the only reason I'm even discussing intrinsic value.
No one seems to want to defend their position about insider trading. They make a point, I counter, and then they either change topic, or quit. That, or they just recycle one of the points that someone else has made 10 times already in the thread.
With that said, it seems you are trying to keep the thread on topic, and I appreciate that. Sorry for singling you out.
TANK
M1ThinkTank:Intrinsic value is the value of a stock if all future cash flows from that stock were certain and known.
Since the future could neither be known nor certain, "intrinsic value" as defined does not exist. All pigs could get to the Moon if they decided to do so and were able to fly through space.
Since the future could neither be known nor certain, "intrinsic value" as defined does not exist. All pigs could get to the Moon if they decided to do so and were able to fly through space. Z.
Pigs? What a waste of my time.
FACT: If future earnings were known, then we could pay a price for that stock be guaranteed a certain rate of return.
Call in intrinsic value. Call it whatever you want.
Better yet, try to prove it is wrong.
FACT: If future earnings were known, then we could pay a price for that stock be guaranteed a certain rate of return. Call in intrinsic value. Call it whatever you want. Better yet, try to prove it is wrong.
FACT: If pigs could fly through space, then they could get to the Moon.
Call it "Pigs On The Moon". Call it whatever you want.
FACT: If pigs could fly through space, then they could get to the Moon. Call it "Pigs On The Moon". Call it whatever you want. Better yet, try to prove it is wrong.
I can't disagree with it. If pigs could in fact fly through space, they could potentially get to the moon.
Can you? Or can you disagree with my statement, without making some dumb comment about pigs?
I can't disagree with it.
I agree that things have intrinsic value in the sense that you agree that pigs could get to the moon. Glad we're in agreement.