What if it were legal to use insider information?

Well, actually it is legal to use insider information, if you’re a publicly traded company buying back your own stock. Companies make billions with this, don’t they? Shouldn’t they? They not only have insider information – that have “perfect insider information” – they’re running the company for Pete’s’ sake! If anyone knows their future success, it’s the executives running each company, right? A recent article “Companies lose billions buying back their own stock” by AP Business Writer, Bernard Condon, demonstrates that even with perfect insider information, investors of their own company stock may lose big. I don’t blame them for doing the buy-backs – at face value they seem to be excellent companies! It just shows how fickle is the market – and how variable are the results of companies that even appear to be solid. This is a great illustration of the incredible futility of investing with individual stocks.  Investing in stocks is concentrating your investment – the exact opposite of diversification. Yes, you can win big – but having chosen that stock is more pure luck than it is skill. Diversification wins because it allows you to get access to the return of asset classes while greatly reducing your exposure to the crazy movements of any single company stock. Academic research has shown that it is asset classes and their mixture in your portfolio which account for almost all of investment returns. Movement of individual stocks, on the other hand, is responsible for very little of the return. That’s why executives receiving large amounts of their company’s stocks are advised (if they have good advisors) to diversify out of it as...