According to CNBC’s John Carney: The government is convinced
that money managers who consistently beat the market are probably using insider
information to produce these abnormal returns. Unfortunately for prosecutors
who want to shut this kind of thing down, one way this is done is perfectly
legal.
One of the ways for a hedge fund manager to beat the market
is to avoid buying stocks ahead of bad news about a company. You can beat the
market with a diversified portfolio that avoids buying stocks in companies that
underperform. That's hard to do unless
you have a way of figuring out bad news ahead of the rest of the market.
Obtaining material, nonpublic information is one way. But if you trade with
this information, you risk violating insider trading prohibitions. Hefty fines
and jail time won't help you outperform.
So the way to do this is …..
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