Insider Trading: The Four Classifications of Illegal Trading

Insider Trading occurs when actual insiders, constructive insiders, certain outsiders, and tippers/tippees trade on the basis of material, non-public information. Below, I discuss the definition of each category of trader that can be implicated with a 10b-5 violation of insider trading.

Actual Insider: This is the most basic and straightforward category of insiders–this refers to members of the Board of Directors, the officers and members of management positions, controlling shareholders, and even employees that are privy to material non-public information resulting from their position as a corporate insider.

Although this may seem surprising, the Supreme Court did not address insider trading it handled the case of Vincent Chiarella–a markup man at a financial printing shop that was able to decode the target company in a takeover bid (it is common for corporations to use codenames like “Pinewood” or “Spruce” to maintain secrecy during takeover preparations and submit the true names … Read the rest of this article!

How To Invest During The U.S. Tax Cut

When the United States cut its corporate tax rate from 35% to 25% at the beginning of 2018, I paid special attention to large-ish cap stocks that derived most of their profits from the United States because those companies stood to be the obvious, prime beneficiaries.

My search led me to three companies: (1) Adobe; (2) Boston Beer Co.; and (3) Dr. Pepper Keurig.

For the past two years, I had been paying special attention to Adobe, the software giant with the 28.7% net profit margins that has been raking in the cash ever since it stopped selling software products and started licensing them instead.

The problem is that the valuation has been absurd. When I started studying Adobe in depth about a year or so ago, its P/E ratio was 40. It was a $70 billion or so company. Too many parallels to 1999, thank you very much.

The … Read the rest of this article!