Well well well. Yesterday the news came that 62 year old Martha Stewart, domestic style / living maven and media mogul extraordinaire, was convicted of four counts of:
1) lying about having prearranged to sell stockholding investments in a medical drug company called ImClone, if the stock fell below $60 per share. Ms. Stewart sold $228,000 worth of ImClone stock one day before the company failed to get U.S. Food and Drug Aministration approval to review a cancer treatment drug.
2) She lied about not being able to recall being told that the family of ImClone founder Sam Waksal was selling stock as the company was running into problems.
3) Conspiracy with her stockbroker in working to obstruct justice and make false statements. and...
4) Ms. Stewart tried to hamper an Securities and Exchange Commission investigation.
Well, well, well. It appears that the federal prosecutors could not get some kind of conviction of "criminal activity" regarding "insider trading" on Ms. Stewart, so they decided to try to hang her on charges of lying. Maybe state and federal prosecutors should start expending more of their creative energies on convicting elected officials and bureaucrats on charges of lying.
I have to admit that I don't like Martha Stewart. It has nothing to do with her wealth or what she has managed to achieve in life. For those traits, I have nothing but admiration for her. She literally has managed to create something of value out of something that should be rather commonplace. She has achieved much more in life than the government prosecutors who convicted her on petty charges of lying.
What I don't like about Martha Stewart is what others don't like. It's the way she comes across to you. She has this steely, faintly patrician, New England aura and persona about her. Ms. Stewart is the Norman Rockwell world of distant country suburbia, SUV's, nice clothes, and - distantly - of liberalism. If it comes to style, cooking, and so on, I would far rather go for watching sensual, brunette haired, British diva Nigella Lawson (who happens to be the daughter of a former Tory Chancellor of the Exchequer). Watching Ms. Lawson strut her stuff can really put some steam into one's imagination. Cooking that is...
As far as "insider trading" goes, I have some rather strong opinions on the subject. About 8 years ago, I purchased and read a book called "The Secrets of the Street." The book was authored by Gene G. Marcial, who wrote an investment column for Business Week magazine for many years. In his book, one of the items that I distinctly remembered that Marcial hammered on revolved around the issue of information. The subject of information was an issue that I further learned the importance of when I went back to school and studied Economics and Game Theory.
Marcial wrote that various players in financial markets (as in all other forms and games of human endeavor) have access to different kinds and levels of information. There is a big difference between having poor information, having good information about something, possessing great information, and having PERFECT information. If you have PERFECT information, you can beat everyone else everytime. Essentially, the righteous types who complain about market corruption and "insider trading" are complaining that there are people out there who have access to better information than everyone else. Ergo, they can act on that information before the public does and gosh darn it that's just not fair!
However, there are already laws on the books that say that if you are a high level official in a publicly traded company, you have to file forms and statements as to when you are going to buy or sell stock. That information is then released to the public and other players in markets can act on that information.
"But wait!" you cry. Ms. Stewart did have access to privileged information regarding ImClone. Well, maybe she did. But where's the crime involved? She had a well connected broker and he did his job. So What?
One of the things that really irritates me about the issue of stocks and "insider trading" is that over the long run, if you are going to go playing individual stocks in the stock market rather than playing it safe and simply investing in - say - mutual funds, then most people probably are not going to do any better than if you went the safer route. In order to do really well at stocks and investing, you have to invest an ENORMOUS amout of your own time towards digesting vast swathes of information on what's going on in financial markets. Ergo, why should people get wired up over this?
It is telling that in the extreme Internet / dot.com bubble markets of the 1990's, there was a thriving crowd of "day traders" who quit their jobs and simply tried to spend their time speculating on the stock markets. Let me ask you this - when was the last time you heard a news story covering "day traders?" Why don't you hear stories about people day trading? Because, most of them were burned alive when the ENTIRE stock market tanked in 2001 - 2002, damn it! They either didn't see it coming or refused to believe that the ENTIRE MARKET would EVER crater. If they did see the crash coming, then either they didn't get out in time or they just didn't act on what they saw coming.
I have to say that I have done reasonably well in my own investing. I basically rode the wave of the 1990's, but I pulled all of my money out of the market in late 2000 and put my money into bonds. I had a strong feeling that the overall market, which was trading at about 35 times earnings as a whole, was vastly overvalued. Ergo, I avoided the market crash, but I subsequently missed much of the market rebound last year. This was because I am still suspicous that the markets are overvalued and I don't want to get burned.
Nonetheless, I work for a company whose fortunes have changed somewhat recently, ergo my company matching part of my 401k plan has done well lately. If you have done well, it's far better to concentrate on preserving your capital than trying to expend it on speculating on the next great thing. That's how the old money rich stay rich.
Enough! It's Saturday evening and it's time for some Jack Daniels!
Regards.
Posted by The Mighty Wizard at March 6, 2004 11:10 PM