Insider information

As an investor you probably believe you can outsmart the market. You are sure you can pick the right stocks at the right time. Furthermore, you will sell these stocks at exactly the right time. The execution of your investment strategy gives you a return that exceeds the return of the market, year over year. Even better, you make this return with a lower risk profile than the risk profile of the general market.

Information

Having the right information is very important to become a successful investor. Most information that is released by companies will not shock the market in a dramatic way. But it always pays off to keep an eye on news about a company that you invest in, or would like to invest in.

As an investor you should keep in mind that you will never be able to track the news of all companies. There are simply too much companies and investment possibilities. Spitting through the press releases of all companies will keep you off the street for a long time. And when you can go out again, you will find another pile of press releases.

Create your own portfolio of companies that you like. I like to call this my opportunities-portfolio. Keep track of information that is released about these companies. And if there is information that you think you can benefit from, invest in these companies. This will allow you to keep a close eye on the news, and still are able to get out from time to time.

Timing of information

But information is not the single most important thing that an investor needs. Timing of that information is. When you get information at the time that the market has already reacted on this, you will not be able to benefit from that. The sooner you can get a hand on information of companies in your 'opportunities-portfolio', the sooner you can invest in them. And this means that you can benefit from changes in the stock price for a longer period.

Now the challenge is to get information before most other investors. And to know which information you really need to benefit from these investments. You should keep an antennae out for event related information. Two different types of events exist, the expected and unexpected events.

Unexpected events are events that you cannot prepare yourself for. It is not known when these events will take place, or whether they will take place at all. These events can be mergers or take-over bids, changes in profit expectations and regulations that impacts you 'opportunities-portfolio'.

Expected events are events where the investment community is waiting for. Think about scheduled press releases, yearly and quarterly reports, announced public offerings and convertible bond executions. Expected events can also be highly sector specific, like an approval of drug testing results. You can free time in your agenda to be one of the first to act on the news, but you will not now upfront what is announced.

To benefit from the information released by these events, again you should keep an eye on the news. This is another reason why you should prepare an 'opportunities-portfolio'.

Inside information

But before information is released to the general public, lots of people already are familiar with it. Not only the people who write the press release, but also a lot of other insiders might know of an event. More important, they also can predict the impact of an event on the stock price.

You could guess a lot of people that might be familiar with the insides of a company. Management does know a lot about a company, but also a lot of other employees might already know the contents of a press release. But it is not only limited to that.

Investment banks and large investors have periodical meetings with the boards of companies that they invest in. And they have direct contact with the management. This allows them to have an early preview on lots of information about the company. This includes information that can move the stock.

Although it is illegal in most countries to use or abuse insider information, not everybody can resist the financial gains. Or willingly or unwillingly they release some of the information to others that benefit from such investment.

A lot of books exist on how Wall Street, or any other financial street, works. This can give you great inside information on how banks and investment companies get their information. And how they can act before everybody else can. Spoiler alert: this has nothing to do with gut feeling. One of such books is "Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market" by Daniel Reingold.

Do you still believe you can outsmart the market, even if you lag behind the professionals?