I didn’t understand this concept of insider information as it applied to the stock market until Martha Stewart was indicted for it in 2003. It seemed like a ridiculous thing to indict her on for many reasons. One, the dollar amount was really small. Two, so someone gave her a bit of information ahead of time; doesn’t that happen all the time?

It turns out that it doesn’t really happen all the time. All these people who predict the stock market are, for the most part, guessing at what’s coming. They follow trends and they keep up with the news and that helps them make assessments that they then pass on to everyone else. Occasionally they might know someone within a company that they’ll call and basically ask “what’s up”, then see what that person might tell them. But a beeline to the people in charge; doubtful.

Why is it such a big deal? For the big boys, having advanced knowledge of what’s coming can change not only the power structure of an organization, but could make or break that organization. If the day before a company was going to announce that it was going bankrupt every top executive in the company started selling their stock, it would cause a mass panic that might wipe out the company, yet the executives would have made out because they’d had insider information, which was themselves, and not suffered as much. If they called all their friends and gave them the same news, their friends would benefit as well.

If stocks were bought by only 100 people, no one might care all that much. But hundreds of thousands of people own some kind of stock, some in companies they’ve never heard of, and that’s where it gets problematic. In this situation, the needs of the many need to outweigh the needs of a few, but with insider information it won’t work that way. So many people will suffer; that’s not quite fair.

But hey, you’re just a regular guy, how could your knowing what’s coming affect you? It seems that if you have an established pattern and then out of the blue you do something that ends up looking suspicious, you can get arrested and go to jail for it as well, especially if you benefited. Of course it might be harder to track down small investments but it’s really not worth the potential trouble.

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