So the SEC is investigating analysts who peddle “channel checks” for violation of securities laws. Former SEC chairman Paul Atkins summarizes the law as follows:
“Insider trading basically comes down to where you know or ought to know that the person from whom you’re getting this information has a duty to someone else to keep it confidential. If you go in and pay the mail clerk to give you special information, that’s not proper.”
This is perhaps newsworthy. But the real news is that information that comes from sources that cannot be verified should not be trusted and certainly not valued.
Here’s why: if someone holds information that is non-public they automatically treat it as more valuable. It’s more valuable because it’s not something everyone has. It’s not valuable because it’s accurate. By definition, that accuracy cannot be proven so the assumption of its value is based entirely on exclusivity. So valuable perhaps that you can even sell it, and surely many do.
However, simply not being public makes is no more likely to be accurate. You have a situation where people ascribe more value to something that is equally (and sometimes even more) inaccurate as background noise.
Beware of anyone offering non-public information to a larger audience. The data and the person’s ethics are both suspect.
The proof comes every quarter: those who rely on inside info are no better and often worse in predicting fundamental performance.
