Andy Kessler recently published a terrific opinion piece, entitled Galleon and the Trouble With Insider Trading. He suggested that it’s impossible for investors to get a short-term trading edge. It’s better to make long-term investments based on big-picture trends.
Information now travels at the speed of light. The edge to human traders is mostly gone, arbitraged out by fast computers. Near-term blips in stocks will always be driven by those with industry contacts, legal or illegal. The only way to truly beat the market long term is to use your head, think out long-term trends, figure out where productivity and therefore wealth is being created in the economy, and invest alongside it. This might include investing in wireless commerce, gigabit broadband, personalized prescription drugs, oil shale extraction, or electric grids that can better allocate power to where it is needed.
Ironic.
Galleon invested in high-tech businesses, which build chips and other gizmos that enable information to “travel at the speed of light.” In doing so, the hedge fund sewed the seeds of its own demise. Its portfolio companies manufacture products that 1) negate the long-term value of insider information and 2) make it more difficult to obtain.
Insider trading sounds like an unsustainable business model.
But can investors really profit from big-picture trends? The New York Times reported today, that Al Gore is poised to become the world’s first “carbon billionaire” even thought he listed his total assets at less than $2 million when he left the government in 2001.
Nice returns. We’re impressed here at Acrimoney. But what if you’re not Al Gore?
I believe we are all surrounded by opportunities to identify mega-trends. Just this weekend, I had the good fortune to hear former Tony Blair address Colgate University. He said that over the next two years China will build more power stations than all of Europe built since the end of World War II.
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.