Sunday, March 6, 2011

Uncommon Cents?

James Stewart in the Wall Street Journal column Common Sense asks Why Practice Insider Trading?  To paraphrase:
Raj Rajarantnam bought Goldman Sachs stock on September 23, 2008 for $125 a share, and sold it on September 24, 2008 for $133 a share.  But, had he been smart enough to hold onto the shares until today, they'd be worth $165.
(If you've been living with goats in rural Wisconsin, Rajat Gupta, the one time Managing Director of McKinsey & Company has been accused of leaking confidential information to Rajarantnam while Gupta served on the board of Goldman.  This topic pains me, as I wrote here.)

Don't let James Stewart manage your money.  Raj made 6%, essentially without taking risk, over night.  James made 32% in two and a half years, with lots of risk.  Heck, Raj didn't even have to put up the cash to settle the trades.  James held a very risky stock for two and a half years.  (Remember, GS fell below $60 in November!)

So, why insider trade?  Very good returns for Raj.  If Rajat did it, your guess why is as good as mine.

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