Chapter 1 Preface: 4/27/2010
by William Schmidt, Ph.D.
(C) 2010 www.tigersoft.com
Buying - The Tiger Advantage
Insiders know their companies better than nearly anyone.
We would wellHow TigerSoft Flags Savvy
to watch what they are doing. When you see heavy insider buying
as TigerSoft measures it, do a little "do-dilligence" on Yahoo and
find out how much they are buying, etc. Another useful site is
TigerSoft are privy to no insider tips or secrets. But over the
years, we have learned how to spot savvy insider trading that is
about to send the stock up and up and up! This pattern of buying
repeats over and over again, year after year, in all markets, because
someone on the inside knows something very good will happen to a
company in the not too distant future. They know this with a certainty
that is reflected in their manner of buying.
The Three Key
Stages To Watch for
First, they quietly accumulate all the shares they can.
A weak generalbulges in the
TigerAoft Accumulation Index
in the chart below.
market environment makes this a relatively easy pursuit. See the
When no more shares are available this way, they become more
aggressive, because they know there is a very high probability that
the stock will be much higher in six months or a year. We spot this
stage technically, using our Accumulation Index, price patterns, volume
and the automatic Buy signals which we have back-tested for the
this purpose over more than 30 years of time with thousands of stocks'
Finally, because the stock is tightly held and the insiders have
quite shrewd, prices rise
very sharply on high (red) volume, as more
and more professionals and a handful of public speculators jump aboard.
If you look closely, you can see all this in the DDRX chart
In particular, see how our TigerSoft Accumulation Index spots the
earlier periods of insider accumulation by rising above the +.5 threshold.
The indicator varies from -1.0 to +1.0. It is quite bullish that there were
three periods when it rose above +.50. A lot of stock was accumulated.
The many automatic Buys are our alerts to buy the stock. The rising
prices show us we were quite right; this was very savvy insider buying.
Who are the insiders in any particular
case? Sometimes, you can tell by
looking at the official inside trading records that corporate insiders must report
to the SEC. More often, there is no easy way to know. But make
no mistake about it, someone on the inside knew. That's why the
trading patterns matched so exactly the model we have constructed
to spot savvy insider buying.
Wall Street's 'Dirty Little
INSIDER TRADING IS RAMPANT!
been writing for years about how the SEC is worse than useless and
toothless, because it still gives the least informed members of the public the
dangerous illusion that there is a governmental agency effectively policing and
preventing investment fraud and insider trading. There is so much proof of how
rampant is insider trading that one hardly knows where to begin to discuss it.
The charts tell the story. And they go back years and years, not just to 1990
as shown here. With each new daymore examples emerge. Even governmental
officals decry the state of affairs. The SEC now says it was deliberately
understaffed so that it could not properly regulate under the Bush Administration.
The US law itself seems clear. While corporate insiders,
directors and officials may buy or sell their company's shares, they must not
do so based on material non-public information about their company and when they
do make a trade, they must report it to the SEC, which then allows the public to see
what they are up to. If insiders do make trades based on non-public information,
the trades are considered fraudulent and the insiders are judged to have violated
their fiduciary responsibilities. In addition, trades made by insiders tips to
friends and associates are illegal. Again, the insider's duty to public
considered to have been violated by such tips. Stock brokers, analysts and
journalists who in the course of their duties, discover and then trade upon
non-public information that materially affects a company's stock also break
the law, if they "had
reason the believe that the tipper had breached a fiduciary
duty in disclosing information." Federal Court decisions have further clarified
what the law considers insider trading. The SEC v. Texas Gulf Sulfur (1966)
is the most important case in setting the law. TGS found an unusually
rich depost of ores near Timmins, Ontario. Initially, the company issued
discouraging press releases about the discovery's importance, all the while
several directors for the company loaded up on call options and stock. The press
releases were clearly meant to dupe the Canadian farmers, too, into selling or
leasing their land at a fraction of its probable value.
The 1934 Securities and Exchange Act gives the SEC the authority
to demand that violators give up their trading profits. They may also ask a court
to impose a penalty of up to 3 times the profit realized by their insider trading.
The sane law gives the US Justice Department the authority to bring criminal
prosecutions against those engaged in insider tradering. Only a handful of
individuals are brought to court. In 2002, an inside trader could be given a 20-year
jail sentence and be fined up to $5 million. In practice, criminal penalties
rarely sought, except in a few high profile cases. As a consequence, such
penalties act as very little deterrent.
Unfortunately for investors, the SEC acquired a reputation
between 2000 and
2008 of being all but toothless and certainly indifferent to insider trading. Too
they decided, while the trading may have looked suspicious, it would been too hard
or too politically imconvenient to prove that the insider trading was done because
of illegal use of non-public information. The weaker the SEC's enforcement looked,
the bigger the problem became. In August 2006, the NY
Times ran a lead story on page 1
that Wall Street insider trading had "gone wild". "41% of all mergers worth $1 billion
or more over the last 12 months show signs of insider trading ahead of the deals."
26, 2007, the NY Post quoted a senior SEC official as
saying that insider trading was "rampant"
among Wall Street professionals.
"I am disappointed
in the number of cases we are seeing by people who
make an abundant livelihood in the market..."
In another example, a 5/18/2008 GA0 (Government Accounting)
report on the
SEC wrote: "In one
case, an enforcement attorney told the GAO that a
company offered to pay $1 million to settle a case, but the attorney
recommended no penalty because "they did not believe the commission
would approve the company offer."
See - http://www.star-telegram.com/business/v-print/story/1380769.html
John Mack, the CEO of investment bank,
Morgan Stanley is apparently above
the law. Gary Aguirre, a former
SEC investigator, told a Congressional committee
that he was fired when he tried to interview Mack about tipping off the
hedge fund Pequot Capital Management about a 2001 merger deal between
GE Capital and Heller Financial. Pequot netted $18 million in profits
from the tips. A Congrsssional
Investigation was launched. It
with Aguierre against his bosses at the SEC
In July 2009, the
Seattle Times noted that the SEC typically goes after the small fries
for insider trading, while well placed insiders and institutions often get off without
even a warning. Insider trading, the articles concludes is rampant. Even former
SEC Chairman Cox admitted this: "There is ample
empirical evidence that there is
significant trading in securities markets on the basis of secret advance knowledge".
So, flagrantly Illegal insider
Trading is rampant and commonplace. This is the
inescapable conclusion we reach looking at all the evidence. The SEC exists mostly
to give the appearance of fairness for all investors on Wall Street. Insiders sell
when false, exaggerated and distorted "good news" comes out that they know will
turn bad. Earnings and earnings' estimates cannot be safely trusted.
discoveries of "Cooked Books" and CEO Lies and cover-ups are very
Since 2001, the SEC has prosecuted about 50 cases of insider
trading per year.
That is not nearly enough to stem the tide. Insiders who use a modicum of discretion
have no fear, especially if their gains are not out of the ordinary. The SEC picks a
number of high profile individuals to prosecute for insider trading. This is for
99.9% of the other cases where big gains are made flagrantly using insider trading
are ignored. The prosecution of a very few well known people is done for public
consumption, to make it seem that the SEC is protecting the public. This was
in the Clinton Administration, too.