Black Edge [Book Review]

In terms of financial investments, individuals can make money based on the knowledge behind the monetary value of various stocks. Edge is the term coined to represent this knowledge, and it has “degrees” of publicity. If you read the information in the New York Times, it was in the public domain and this white edge was safe. However, since everyone knows this information and digitization responds to public announcements almost instantaneously, you can’t make a living just off of white edge. And that’s where black edge comes in……

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Black Edge, written by Sheelah Kolhatkar, is a story behind the “inside information” that is illegal to utilize in stock market profits. Black edge can come in the form of unpublished revenues, unannounced merges, and internal project findings (medical, technical, digital) before being published in any form that can be obtained without fancy dinners, sport outings, or just general “business relationships.”

The main focus of the book is on one man, Steven Cohen, and his rise from being a son to a poor family to becoming a business owner of his own hedge fund company (SAC) as a successful billionaire “built” on an aggressive hierarchy of shady trades. The books goes into a hefty story behind the interactions between the SAC, the Securities and Exchance Commission (SEC), the FBI, and the multiple individuals involved. I won’t go into the details behind these specifics, but it does involve doctors, art auctions, FBI rivalries, an a few condemned traders (just not Cohen).

Lesson learned: If your company is going to thrive on illegal operations, make sure that there’s no links that trace yourself back to your minions doing all the dirty work.

Just sayin….

The narrative, however, does lead to many introductions into the details behind multiple topics that the audience can learn from, outside of the limitless possibilities when one becomes a billionaire. Nothing like collecting  art, right?

https://en.wikipedia.org/wiki/The_Physical_Impossibility_of_Death_in_the_Mind_of_Someone_Living

If you aren’t familiar with hedge funds, their name originally came from a technique of “hedging your bets.” You would buy stocks that you think were going well, and you would short stocks that weren’t going to do so hot. [Shorting stocks, explained in simple terms, is selling a stock that you don’t own….yet. You’d buy it later when the price (hopefully) drops]. Thus, you would return some sort of profit regardless of if the economy boomed or busted. Original hedge funds were very stable, like bank investments that looked at the long term potential, until ….. they weren’t. They just started looking at quarterly returns and then to weekly returns.

And finally, hedge funds no longer “hedged their bet”……they just traded however they liked to maximize profits. This trend took off in the financial sector and is now the huge swing in corporate American focus that everyone grumbles about today. Short term investments, at the sacrifice of the long haul. This has even led to the “demonizing” of target companies that specific individuals were planning to benefit from; publicly ridiculing (anonymous, of course) a company to force their stock prices to drastically go down (and shorted stocks to be profited from).

Black edge, thus, has been the main ingredient for this financial monster to keep dredging through the years, even after the stock market crash within the last decade. As observed through this book, it can be handled in different ways. It can be developed from a false sense of trust and relationship between individuals. It can be from a tit-for-tat trade deal, where each party is the benefit of a financial gain. But most importantly, for the legal security of the interested parties, it was treated as a Fight Club. The first rule of Fight Club………

The alternative tactic in gaining an edge over other investors is in gray edge. Something in the middle, where it feels wrong, but not bluntly wrong. While everyone will have a different sense of what would be difference between white and black intel, the only opinion that matters is the government. And even that changes over time!

The epilogue describes how recent court rulings have set a new premise in what is considered illegal trading. This involves something on the lines of……

“The benefit the leaker received in exchange for sharing the information had to be something tangible, akin to money. Friendship or favor-trading on its own was not enough.” (page 291)

People were let go, charges were dismissed, and others continued to make millions in weeks.

Personally, I don’t know what is truly right or wrong. When you think of crimes, there’s typically harm [physical, financial, social, mental] done to a specific individual or group. However, in the stock market, who is losing? It’s similar to the selling price of a house, where someone may not make that money because they were not available, physically or mentally, able to take that risk in buying/selling at the right time. Stocks, on the other hand, are so anonymous that illegal trading can feel extremely harmless……..

 

 

 

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