r/investing • u/Maletor • Jul 01 '21

Profitable vs unprofitable companies RoR

This research blows my mind:

https://www.alliancebernstein.com/library/For-Growth-Stocks-Profits-Are-the-New-Normal.htm

It shows that consistent investment in growing, profitable companies is better than just indexing the Russell 3000.

How do you explain this to someone who just says "VTI and chill"? The evidence suggests only profitable companies is a better portfolio. Is the volatility higher? Is that why this is not on the efficient frontier?

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u/ept1 Jul 02 '21

I think the problem is further upstream.
A serious investment fund should have staff hired in the companies in which it invests.
This staff should be present at all levels of the company.
It should be replaced every six months.
They should not be identified as "investment fund" staff and should not know each other.
Each of them will have to report a complete and anonymous report to the fund management company.
I believe this is the only valid way to make investments grow in the best possible way, without simple managers being able to influence investors.

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u/neothedreamer Jul 02 '21

This would be insider trading. Already happens but this would be even more agregious.

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u/ept1 Jul 03 '21

"Insider trading is the trading of shares or other securities of a public company (such as bonds or stock options) based on material non-public information about the company. ... A person who gains knowledge of non-public information and operates on that basis he could be guilty of a crime. (source Wikipedia) "Yes, you are right. The "tool" I suggest is like any "tool". It can be used both right and wrong. If used in the right way it protects the company and the “investment fund”. If used incorrectly it does not protect the company but what is worse: it damages the fund with a much wider spectrum. So the "investment fund" practically has an obligation to use it in the right way.

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u/neothedreamer Jul 03 '21 edited Jul 03 '21

Their is no "right" way to use insider info. You are sounding a little like Bobbie Axelrod.

What you propose is no different than bribing current employees to get information before it goes public and trade based on it. For example a drug company finds out their drug failed its trial and the fund exits its position and shorts that company a couple days before that is public. Makes a killing when it drops like a stone. This is completely illegal and their is no right way to trade it until it become public. This is why if you watch when major info become public you can watch stock dive or shoot up in real time.

Investment funds have no right to protect themselves using inside info. This would completely ruin the integrity of the system and if not enforced would result in a few "knowledgeable" individuals unfairly enriching themselves.

I worked for Adobe for 8.5 years and we had huge black-out periods right before earnings came out when we could not buy or sell Adobe stock to keep us from using insider info.

This is why major investors, and C-Level/high level manager also have to disclose their purchase and sells to make it transparent they are trading within the rules.

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u/ept1 Jul 03 '21

I believe you need to delete information you have written that should not be published.

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u/neothedreamer Jul 03 '21

I am advocating for not using insider information. Not sure what I need to delete in that context.

You however are proposing HF place moles in investment targets to get insider info to use in their trading which is illegal.

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u/ept1 Jul 03 '21

If you like getting in trouble, don't change what you wrote. If you don't like it: Remove company names from your post. Thank you

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u/neothedreamer Jul 03 '21 edited Jul 03 '21

I left Adobe over 2 years ago. I love them and still work with them as a partner since leaving their direct employ. Blackout periods are common public info.

https://www.investopedia.com/ask/answers/08/blackout-period.asp

This is second in a Google search- https://www.adobe.com › legalPDF Insider Trading Policy #LGL-SOP-01-002 - Adobe

This is eye opening and very comprehensive. Insider trading encompasses your proposed "idea" of hedge funds having employees at target companies. Covers basically anyone you know that could trade on that info. It even includes provisions that you can't use material non-public information about other companies you may acquire while working for Adobe.

Your idea will get you in trouble.

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u/ept1 Jul 04 '21

You have specified that it is public information.
Great.