The Legal Version of Insider Trading

Hi ,

In his recent State of the Union, the president called for banning members of congress from trading individual stocks. 

It was the only moment that garnered applause from both sides of the aisle.

When something earns bipartisan support these days, it’s because it touched a nerve. Stock trading by people in power makes us uneasy. These powerful people are closer to the information than the rest of us. Their proximity creates an advantage.

In public markets, that advantage is a problem. If someone can trade on information before the rest of the market sees it, ordinary investors are the ones left holding the bag. By the time the news reaches everyone else, the price has already moved.

Personally, I started investing in 1999. I dutifully allocated to public markets, then fell right into the lost decade. What I thought was participation in wealth building was actually just receiving what others had already decided. I later realized that public market investors sit at the end of a complicated information chain. The field isn’t level. The people closest to the companies (i.e., the stock) see the signals first. 

That’s how you get this:

Image credit: Via IG: @Yunggeeski, @TradewithCongress and @QuiverQuant

That reality is why insider information is so problematic in public markets. But also why proximity can be the exact opposite in private markets.

In 2006, I acquired my first small business. For the first time I was closest to the decisions, not waiting for the news to reach me. I understood the customers, the margins, the risks. I had the proximity. 

By 2013, I had moved meaningfully into alternative assets for the same reason. They were structures where I could sit across from an operator and understand exactly what I was investing in, before the information was priced into the asset.

With these shifts, I started to understand something.  The most sophisticated investors weren't avoiding the instinct  behind insider trading. They were just doing it legally. With better information and with earlier access to the deals. They had proximity to decisions before outcomes were priced. Proximity to information is a key strategy. 

That's the lesson in this issue. It took me fourteen years and two market cycles to internalize it fully. Now I’m sharing it with you. At a moment when proximity is being debated in public markets, you’ll be able to see how to take it to the private markets where it really belongs.  In this issue:

• The perception of fairness in public markets, and what that costs you as an investor. 

• How private markets reward proximity.

• A playbook for moving closer to the information source in your own portfolio.

And a profile of one of my real estate partners who deliberately engineers proprietary information across a $300 million portfolio. His proximity translates to a visionary strategy that compounds into returns for passive investors (HINT: It’s why I’ve invested so much of my own money into their funds).

Capital rewards those who see before others do. The private markets do it without drama.

Let's get into it.

— Walker Deibel
WSJ & USA Today Bestselling Author of Buy Then Build
Founder, Build Wealth

SHIFT YOUR STACK

It could be a phone call, an email leak, or a comment face-to-face. But insider trading scandals always come down to the same thing: someone knew something before everyone else.

In public markets, acting on that advantage is illegal.

The behaviors that make trust in public markets fail are the same behaviors that create an edge in private markets. There’s a reason we call them alternatives. Different rules apply. 

How Public Markets Aim to Level the Field

In highly liquid public markets, advantage is regulated into a specific shape. No one is permitted to act on information others don't have. That is insider trading. Disclosure requirements, earnings blackouts, the entire architecture exists to enforce that constraint. The result is a market where millions of participants are working from roughly the same information set, priced in real time, continuously.

That's the design, at least. Public markets require trust to function, and the entire regulatory architecture exists to protect that trust.

The cost of that design is paid by the individual investor. When information is universally disclosed and instantly priced, the edge disappears before most people can act on it. You are not competing on knowledge. You are competing on speed, scale, and resources. In that competition, institutional players win almost every time.

Insider trading doesn’t simply create gains for the insiders, it harms outsiders. The SAC Capital insider-trading scandal illustrates this. 

Traders used confidential drug-trial information to generate $275 million in illegal profits, and regulators later distributed $531 million to about 5,000 harmed investors. Most recently, a federal judge approved a $29 million payment to the drug maker (Pfizer) from leftover funds tied to the SEC’s settlement with SAC Capital, resolving a long-running dispute over who should receive the remaining money from the case.

There are broader effects too. Trading on undisclosed information increases information asymmetry and adverse selection, meaning uninformed investors face worse prices and higher trading costs. Retail investors are often the ones who get the short end of the stick.

How Private Markets Play a Different Game

No one pretends the field is level in the private markets. When you invest directly in a private asset you sit across the table from the operator. You ask to see the financials before they're summarized for anyone else. You invest knowing the customer concentration, the supplier relationships, the covenant structure, the contingencies baked into the deal. You also can ask questions directly of the players. Which means you are stress-testing assumptions and evaluating if the opportunity is ahead of market pricing. There’s early participation. Better visibility. Time to act.

In public markets those pursuits need to be heavily constrained to maintain fairness and trust. In private markets that inside information is often the foundation of why the investment works. 

There is a tradeoff. Liquidity offers real value.  Private markets lock up your money for a period, but for investors who can ask smart questions, read operators accurately, and evaluate terms, a deal can make a portfolio.  Informational advantage in private markets is legal, repeatable, and built into how it works.

Informational advantage never disappears

The same instincts that you should suppress in public markets build fortunes in private ones. An entire genre of social media creators post on how to piggyback on lawmaker trades. 

To show you how valuable those information hungry instincts can be, we analyzed what information traders in high-profile insider trading cases were looking to access. Then mapped where those same advantages are legal and rewarded in private markets. 

Check it out in this week’s report:  The Edge Game: What Insider Trading Cases Reveal About How Advantage Is Built

CASE STUDY

Kyle Howerton Knows Something You Don't

In commercial real estate, information moves slowly. Deals are private. Financials are shared with investors by invitation only. There is a significant gap between what the operator knows about the business and what the market or outsiders know and that distance can remain for years. 

Kyle Howerton has spent his entire career engineering his way closer to that gap.

He grew up in southern Illinois, became a city police officer in St. Louis after college. He entered business school and was changed by a single real estate class.  After graduation he joined George Smith Partners, a boutique real estate capital markets advisory firm in Los Angeles. From there he spent nearly a decade arranging nearly $5 billion in debt and equity financing for developers throughout the country.

He quickly became an expert. As an advisor, Kyle sat inside other operators' deals. He saw the actual numbers. Expense loads. Vacancy rates. Real rent growth. 

He underwrote hundreds of properties and watched, up close, what worked and what didn't.  And because of his position being close to those deals, he knew all that information before it became visible to anyone else.

"After underwriting a few hundred properties and sourcing all types of debt and equity, you begin to realize that financial markets drive success in everything," he says. "You learn what works and what doesn't."

By the time he and his partners formed AHM Group in 2017 and went full-time in 2022, Kyle had spent fifteen years accumulating a proprietary view of how real estate performs. 

AHM chose St. Louis as their territory and focus. It was a deliberate move. The city has lower capital requirements, higher cap rates, less political risk than states like California and New York. But the most important and strategic reason: Kyle knew the market. 

"Being a police officer in St. Louis, I knew three-quarters of the neighborhoods really well. I could see all the opportunities."

He had walked those streets, block by block.

AHM focused on the city limits, just 66 square miles, with emphasis on four primary neighborhoods. Today the portfolio spans roughly $300 million in assets, approximately 1,000 apartment units, and 330,000 square feet of commercial space with ~80 tenants.

Most developers would view 80 tenants as 80 obligations. Kyle views them as 80 data points.

AHM talks to all of them, gets to know them, what’s working, where rents are holding strong, where demand is softening. Combined with a network of four or five other developers who collectively control a significant share of the city's building stock, AHM's portfolio is something no outside investor can purchase or replicate.

A development on one block affects asset values a few blocks over. Kyle knows both sides of that equation before anyone else does. Over time, AHM is shaping the neighborhood. What looks like a single acquisition to the market is often the next chapter of a longer strategy that only makes sense from the inside.

"We can buy things very cheaply relative to what they'd cost if the information we have was public," Kyle says. "Other people would be paying a lot more."

Commercial real estate is, as Kyle puts it, "one of the most opaque industries on the planet." 

There is no tape, disclosure requirement, or earnings call. Pricing is private, performance is private, and the only way to close the information gap is to be inside it. You work through relationships and through years of proximity to decisions before they get made. This edge is meaningful with access to operators. 

“There are three legs to the real estate stool. Market, sponsor, and the real estate itself.” explains Kyle, “When you're an equity investor, the sponsor is the most important leg to the stool. Start with the sponsor and understand their level of expertise in the market and the product type that they're investing in.” 

What Kyle has built at AHM is essentially a legal information advantage compounded over time. The capital markets career gave him pattern recognition. The police work gave him ground-level knowledge. The hyperfocus on a single city gave him network depth. And the portfolio itself — once large enough — started generating its own proprietary data that no outside investor could replicate.

INTERESTED IN ACCESSING KYLE'S PORTFOLIO?

BuildLegacy I is a closed-end fund focused on the Central West End of St. Louis — 11 properties already assembled, a footprint the prior owner took four decades to build (and a nurtured relationship from Kyle). The fund is structured to keep working: rehabilitating, developing, and acquiring as the neighborhood transforms. Build Wealth is the only way into this deal. 

To learn more, visit the dealroom

THE PLAYBOOK

The Proximity Playbook

In the private markets, you need proximity to gain an edge.  Proximity to decisions, information, and outcomes. Here’s how to build it with intention.

1. Invest Where Information Travels Slower

In private markets, information travels via relationships. That gap between disclosure and understanding is where advantage lives.

Ask: Where do I already have more knowledge than the market does?

Your biggest edge is often the industry you already work in. Twenty years in healthcare, manufacturing, logistics, or real estate gives you pattern recognition that a general investor can’t replicate. That knowledge creates proximity. Stop treating your professional expertise as separate from your investment strategy. 

You'll find this dynamic most often in direct real estate, small business acquisitions, and niche private equity strategies. These markets reward understanding more than speed.

2. Favor Operators Over Tickers

For equity investors, the sponsor is the most important component; because in private markets you're not buying a ticker. You're backing a person. 

Get the track record, decision-making history, incentive alignment, and capital structure. These things are only visible up close. When you build relationships with operators, sponsors, and fund managers early you can co-invest on smaller deals before committing to larger ones.

For example, Kyle Howerton from our case study, told us beyond expertise, he focuses on alignment of interest, which he measures three ways: whether the sponsor is guaranteeing debt (they have financial skin in the game), whether they're co-investing alongside LPs, and what the equity waterfall looks like. "There should always be a preferred return and a return of everyone's capital before the sponsor collects any to promote," he said. "If that structure isn't there, keep asking questions."

Remember, the best opportunities rarely get broadly marketed. They go to the people who were already in the room.

3. Build an Informational Edge

It’s not about timing the market. Private market deals are built through access. The advantage shows up in the terms: covenants, governance rights, reporting requirements, preferred returns, and the ability to ask questions and get real answers.

Start favoring investments where you have a seat at the table, even a small one. 

4. Be Ready to Act

Edge without conviction is worthless.

The investors who build real advantage in private markets are prepared to act when the opportunity appears, before it becomes obvious to everyone else. That means capital should be allocated and ready. Your risk tolerance should be capable of making decisions as soon as your due diligence is done. 

Sophisticated investors rarely chase down the deals.  They start where proximity already exists and are prepared when they see it. 

You don't need a $300 million portfolio to apply this framework. You need to know where your proximity already exists, build visibility into deal flow, favor structures that give you influence, and be ready to act with conviction when the moment arrives.

Build it deliberately. One relationship, one deal, one layer of proximity at a time.

POLL

WEALTH STACK REBELLION

"The best investment opportunities come from seeing things others don't." 

— Howard Marks

You were taught that insider trading is wrong. And it is. 

Public markets are designed for fairness. The rules that govern them were meant to provide equal access to already-priced information. Everyone arrives at the same time. Private markets work differently, and they should. They thrive on knowledge and relationships. 

Proximity to knowledge isn’t illegal. 

Sophisticated investors position themselves closer to those making decisions. So they can access information early and stalk an opportunity.

Speed is only a small part of the lion’s advantage. He’s good at hunting because he’s good at getting close to his prey and striking only when the moment is right.

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