The Playbook For The Modern Man

Retired Stockbroker Reveals The Real Dangers Of Going Big On An Inside Trade

More money, more problems.

This story was originally published on Stockhead

Here’s an interesting fact for you to boast to your fellow trading buddies over the weekend. In the UK, it was only made illegal to buy and sell shares on insider information in 1980. Before 1980, there was a legal free-for-all party going on and I only discovered this fact when I arrived on the scene in the mid 80s to find out that the party was well and truly over.

Everyone had been at it, so I was told.

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Horse trainers would swap horse tips for stock tips and Monday morning buy orders from racehorse owners were taken as a signal that something was on and everyone would pile in after their order was filled. This meant it was steak for dinner every Monday night for Mrs Broker and her tribe, so even the local butcher was able to muscle into some insider action, without actually knowing it.

As for all of us budding brokers who got a start after 1980, all we could do was listen to stories from the fat, old, red-nosed broker propping up the bar, about how he had bought his first holiday house “at your age” every time you went to get a round in.

Obviously, none of this would stop this wannabe broker from joining in late to the party. One day, I was able to, when little Jimmy ‘Shuffle Shoes’ called an emergency meeting at his favourite watering hole.

Buy Now Or Grieve Later

Now, little Jimmy was a legend to all of us, as like all junior brokers, we started out as messengers and little Jimmy got his nickname as his little legs would shuffle three times faster than anyone else’s.

He would dart in and out of people’s legs, delivering important settlement paperwork around the city and still be at the pub an hour earlier than any of us. We all got to know each other from scurrying around the streets delivering and collecting paperwork, so it was like a brotherhood.

The brotherhood of messengers.

At the meeting little Jimmy produced three pieces of paper marked ‘Private and Confidential’ and upon reading them it was obvious a company bid was imminent and the company’s name and the bid price was in there in bold writing, for all of us to see. It was agreed that the brotherhood would put £1000 each into a pool, so we could purchase the said stock and then spread the word, once we were fully set.

£1000 in the 80s would be worth around $7500 today – a good chunk of money for a young broker. Everything went to plan beautifully as word spread around the city and our ‘horse’ was looking like Phar Lap, nicely placed coming round the corner.

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Sure enough, a week later the stock went into a trading halt and that afternoon the air was filled with alcohol induced tales of dream holidays and dream dinner dates with the prettiest girls in the office. Life was good and the late-comers had managed to join the party. Or so we thought, as the stock never actually came out of its trading halt.

The Fix Is In

The company’s shares never ever traded again as three days after the trading halt was called the next announcement was that the company directors had appointed administrators. We lost all of our money on a ‘dead cert’ and even more on flashy holiday deposits.

We all wanted answers and Shuffle Shoes was put on notice.

At a soberish post-mortem of the situation, we found out that little Jimmy was shuffling a bit too fast on the day of the discovery and had tripped over at the entrance to the Stock Exchange, where he noticed the three “confidential” pages when he picked himself up from the floor. Until now, we had all presumed he had discovered them in his bag of documents.

It turned out that the real insiders had deliberately placed false and very well forged papers at the entrance to the Stock Exchange, knowing that they would be discovered by mugs like us, thus giving the real insiders the ability to offload their positions, into a rising volume, rocket fuelled share price while we all piled in. We had been duped by a very carefully and well thought out plan.

And that ladies and gentlemen, is how I got caught with my first and last (Scout’s honour) attempt at insider trading.

Next week I have been asked to touch on the art of short selling and the skills and signals needed to pull off a successful one.

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