On Wall Street, or in any active financial market, the most valuable commodity is information. The value of a company, as expressed by the price of its stock, is at any given moment a fixed quantity. For the holder or trader of a stock, the relevant question, the source of profit, is what the price of the stock will be tommorrow, or next year, or five minutes from now. Correctly predicting the answer to this question is a matter of information. Thus, stock traders are continually interested in obtaining information, or in determining whether the information they have is correct.
Over the long term, the sort of information that matters most is available to anyone willing to do the necessary research, and equipped to make good judgments on that information. Is, for example, a given computer software firm going to be more valuable five years from now than it is today? Ultimately, no one can do more than guess, but an informed guess can be based on the development of the software industry as a whole, on the company's past performance, on its continuing ability to hire first-rate programmers, and a host of other factors, all of which can be estimated by anyone with the time and skill to obtain the appropriate information. The company's top management does not really have any more of this information than any other informed investor--indeed, management's skill in making strategic business decisions is one of the factors a skilled stock analyst would evaluate.
In the short run, however, corporate insiders are privy to information of a sort not readily available to even the most skilled outside observer. Suppose that Company X has scheduled a major new software release next week. The release has been extensively discussed in the trade press, with speculation about how well it will be received by consumers. But what if, due to technical bugs, Company X has realized that it cannot release the product by the intended date? Once...