Customer Reviews

Investment Intelligence from Insider Trading

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I discovered this book after reading an interview in Outstanding Investor Digest of the managing partners from Tweedy Browne, who apparently received it enthusiastically. Now I find myself as enthusiastic as they seem to be about the book.

The expression "Insider Trading" tends to conjure images of Ivan Boesky, and others like him, using inside information for profit before the investing public has an opportunity to access that same information. This book is not about that. It is about the utilization of officially disclosed (via SEC filings) information regarding stock purchases and sales by the higher echelon of a firm's corporate managers. As such, it is an impressively researched examination of insider trading and how the individual investor might best make use of it.

Nejat Seyhun uses data spanning several decades (sometimes more) to demonstrate the utility of insider trading information as it might best be exploited by value investors, momentum investors or arbitrageurs. He offers some surprising conclusions concerning buy and selling within firms, conclusions which are nuanced by the size of the firm in question.

The book is a scholarly treatment of a kind of information which is likely to be misinterpreted by the individual investor. Although the book really is a carefully researched statistical exercise, it is readily accessible to investors of any pursuasion or level of expertise. Few books, investment or otherwise, seem to cater to both scholarly and popular audiences so well.

The book's only flaw is it does not pay particular attention to resources for insider trading information. As he mentions, the Wall Street Journal is also worthwhile.

Are you ready to learn from the somewhat mythical, sometimes notorious and often misunderstood inside traders? H. Nejat Seyhun has compressed a gargantuan amount of information - 21 year's worth of reported insider trades, more than one million transactions - into a manual that debunks and reconfigures the wild world of insider trading. Since inside traders are bound by strict laws, their prowess comes from proximity to the action. As a farmer can predict the next big storm by watching his cattle, sophisticated traders can predict the next market windfall by watching the insiders. This isn't a late-night page-turner; after all, Seyhun is a noted academic expert. Yet flashier verbal energy might have sacrificed the book's most valuable quality: precision. This book (the opposite of the Investing for Illiterates-type) takes its readers and itself seriously - If you are serious about your portfolio, we [...] recommend that you put yourself through Seyhun's course. Dedicated investors, policy makers and scholars need this on their reference shelves.

Instead of talking about those dirty illegal insider trading, it is a long term study (from 70's to 90's) of legal, SEC filed stock transactions by company executives, accountants (insiders) to answer, from pg 317, "Can a potential stock market investor mimic insiders and make profits? If so, what is the magnitude of the profits? What kinds of risks does a mimicking strategy impose on outside investors? Given the risks, is it still worth it?"

By and large, the author did provide answers to the above. Profit for the mimicking is still available, after report delays, transaction costs and the need to mimic over 50 multiple transaction to lower risk. For a 12 mth holding period, the strategy outperforms the market by 2% for buying but underperforms by 3.3% for selling.

You can tell the conclusion is simple, but the author did use a lot of set up, with lengthly coverage of legal issues, before summing it up in the very last 14th chapter of this 341 content page book. As per title of this review, it is well researched, informative but too academic and long.

p.s. One minor complaint: The author should give more details on parameter setting and provide an optimal (profit maximization) strategy on the mimicking. Perhaps he did, but he didnt show it in the book.

This is a very good and thorough book. Seyhun addresses many different ways in which you can gain information from insider trading. He is incredibly thorough. That brings me to the major problem with the book--Seyhun is quite repetitive. The different chapters deal with different aspects of insider trading (for example, the size of the trades, who is making the trades, how many insiders are trading). Each chapter has the same structure. Much of the prose seems to be re-used across chapters as well. This is best dealt with by skimming over some of the repetitive parts while paying close attention to the graphs and tables. A second thing about the book is that Seyhun uses tests of his hypotheses that non-statisticians can understand. This improves readability but makes the book longer (and more frustrating for statisticians).

Would that more financial books were written this way. Gets straight to the point, backs up conclusions with the data (and not the other way around), and examines various combinations of factors along with insider trading. Compelling.

This book will teach you everything you need to know about insider trading.This is the best book available on insider trading.This book is worth alot more then it's cost.

But I certainly like to invest with the insiders.