Last year, I had the opportunity to invest money in a company's stock. Due to a family member working inside of the company that gave me information on investing in the company, I knew that there was a highly likely chance of the stock going up rapidly in the near future. Ethical concerns arose because I believed I had information that the general public did not have. Because of this, I chose to not invest in the stock. Even though the stock did go up rapidly in the coming weeks, I still felt I made the right choice.
There are multiple reasons as to why I chose not to invest in the company. While I was unsure of the exact law, I believed that I would be somewhat involved in insider trading. As this is illegal, and being a law-abiding citizen is important to me as an American, so that influenced my decision. I also believed that this was unethical because I had information that the general public did not have and it would be wrong to make money with an unfair advantage. Another reason was that I wasn't entirely sure of the advice, and the possibility of losing money was also in my mind and influenced my decision.
Ultimately, my various reasons came to the same conclusion: making money with an unfair advantage is not only unethical, but highly illegal, and I came to the conclusion that I couldn't proceed with the investment. While the possibility of losing money was a very different reason than ethical issues, it still led me to the same decision.
Before getting to the substance of the post, I must say I'm impressed that you are trading in stocks as a college student. I didn't start to play the market till well after graduate school, when I had a real income.
ReplyDeleteInsider trading is an interesting form of deception because it is about not disclosing enough information, as distinct from making false representations, the common way opportunism manifests in other circumstances. This raises an interesting dilemma.
Capital can flow very quickly to move where it will get the highest reward. Credible information through official channels may not flow nearly as fast. There is often some deliberation about how to best frame the message and often the organization's leadership must weigh in on how that should be done.
This means the issue is chronic, although it is frequently portrayed as a one-off. What then should the informed insider do? Is refraining from trading sufficient or should there be attempts at informal disclosure as well? These are tough questions with no easy answers.
You said in your piece that one reason for refraining from buying the stock was because it is against the law. But you did not talk at all about the likelihood of being caught. So, implicitly, you equated obeying the law with behaving ethically. In this particular case, that is probably a reasonable thing to do, but if in some other instance the law was not a good law, then I'd be curious how you'd decide what choice to make?
I began trading stocks in high school after competing in a school-wide competition and loved it. I began trading through my father until I was 18.
ReplyDeleteI think you make a very good point as to whether not trading with this information is enough. I believed that because I wasn't an "official", that wasn't my responsibility, which probably actually makes the problem worse.
I did equate obeying the law with behaving ethically. My general thinking is that most laws are in place to protect us, and that we can not pick and choose which laws we want to obey and disobey. If I don't believe the law is a good law, then I try my best to obey it while still working to change it. Without law, there is chaos.