Paul's World

Stock trading is a zero-sum game.  You cannot make money from trading without other people losing money.*  In order to win the stock-picking game, therefore, you have to out-trade other traders.  You have to beat the other traders by enough to offset your costs of research and trading (which are deducted from your returns).  And you have to do this consistently, year after year after year.

Even without illegal inside information, your competition is intense.  The hedge funds, mutual funds, and other professional traders you are competing with have, at a minimum:

• Professional analysts and traders with decades of experience who work 20 hours a day
• Huge industry Rolodexes filled with primary contacts at companies whose stocks they trade
• Research budgets that run into tens or hundreds of millions of dollars a year
• Dozens of Wall Street brokers calling all day with every scrap of info they can dig up
• Instant access to 100% of Wall Street research and analysts from hundreds of firms
• Proprietary research services that can cost hundreds of thousands of dollars a year
• High frequency trading computers that act on any market info in milliseconds

To win the stock-picking game, you have to consistently beat folks who have all of these advantages and more. 

And then there’s the sort of information that Galleon is alleged to have traded on.  Yes, some of the information is clearly illegal inside information.  The rest of it, however, is what is known on Wall Street as an “edge.” 

Most hedge funds would describe most of the information Galleon traded on as “research.”  Many would not trade without it—because then they would be like all the dumb suckers they’re trading against who don’t have an edge.