Insider trading: Should investors beware?

Insider trading: Should investors beware?

Probably the number one criticism of the stock market.

It is tough for a shareholder when a firm is not transparent. Insider trading is what a lot of investors complain about and the main reason why investors shy away from the stock market and other security markets. I am here to tell you that insider trading is in fact good for investors despite its obvious cons.

The Nobel laureate economist Milton Friedman along with other big-name economists have argued that insider trading serves to make information efficient in the markets. After all, investors are capitalizing on the stock picks of insiders for impressive results. It has come to pass that when a CEO buys a stock that stock will appreciate and outperform the market as a whole.

It has become easier than ever to find trading data on insiders. Yahoo! Finance has a whole section on Insiders that details their latest trades. With information becoming freely available, investors might want to see what insiders are doing and replicate these actions. Insiders are always going to have the most up-to-date and accurate information; they hobnob with industry bigwigs and have significantly more resources at their disposal.

There are two types of insider trading: legal and illegal insider trading. Therefore, some level of insider trading is considered normal and this, in my opinion (and a lot of others), makes it increasingly difficult to track legitimate insider trading cases.

Regardless, I want you to know that investing in stocks is the right way to go and to not be deterred by insider trading. Instead, make use of the opportunities it readily offers.