Material Insider Information

Well, let’s see… it’s 100% leather, won’t last long in the rain… was sewn together in a Taiwanese sweatshop…Ah ok…Different kind of “material,” but...same idea. With clothing material, you can feel it. It’s real. It itches. It kinda…smells.

But it matters.

Well, material information means that the information… matters - particularly as it relates to a securities transaction. So let’s start with what’s immaterial. You and your buddies all just bought a bunch of Coca-Cola stock, and you’re rooting for it to go up obviously.

One of the guys notes the massive volume of Gatorade owned by Coke leaving the shelves of Safeway on this 112-degree day. Woot woot woot. The guy swears Coke is going to 100. Were this guy the CEO or a board member or some other Coke insider, maybe this would be material...but he’s a plumber.

So he knows a lot about where Coke goes, you know, um…after. Not material.

Material? You’re in the center hub of where almost all insider information that is material trades hands. The citadel. The Pantheon. The temple.

Yep. It’s stall #3, men’s bathroom #4. And you’re going, uh... #2.

The phone rings in the stall next to you. The bathroom is quiet, and you know, echoey... the way all tiled bathrooms are…and because the volume is loud on the phone, you can hear the voice on the other end.

She says, “Okay, so we’re gonna print $1.82 this quarter - that’s the final number, even though the Street has us at a buck 40.” You recognize her voice as the famous CFO of the company.

You also know that, if Wall Street expects $1.40, and the company prints $1.80 in earnings, the stock is going up. A lot. The information you just heard on the phone is insider. It’s material. And it means you and your covered parties, like your wife, your kids who live under your roof and even your dog, with her own brokerage account, cannot trade in the stock until after the earnings release.

And if you aren’t sensitive to material information...here’s the material you end up wearing...