If Phil Mickelson Traded On Carl Icahn's Tips, He's a Hero
By now most are familiar with the allegations involving championship golfer Phil Mickelson. Supposedly using information passed on to him by Las Vegas bettor William Walters, Mickelson allegedly completed stock-market trades that were informed by tips given to Walters by billionaire investor Carl Icahn.
Mickelson has denied any wrongdoing in the confused legal sense of "insider trading," but assuming he's committed capital based on privileged information provided by Icahn, readers should cheer his actions. To be blunt, to the extent that Mickelson traded on information that originated with Icahn, he's a hero for having so done so.
That's the case because when we go beyond the immature droolings of pundits, politicians and journalists who learned about finance from Oliver Stone's Wall Street and James Stewart's Den of Thieves, we live in a world of limited capital. Capital invested in one concept is tautologically capital that cannot be invested elsewhere.
Because the above is true, it's essential that capital reach the best, most growth-enhancing ideas as quickly as possible. Absent the latter, capital is by definition under-utilized or destroyed to the economic detriment of us all.
By virtue of being a billionaire investor, Icahn has a keen sense of where capital will achieve its highest return. That he does is a powerful signal that information inside his head, and uttered by him, can and could enhance the proper allocation of capital that will redound to the global economy's health.
Is Icahn always correct? Obviously not. As former trader Nick Kokonas explained to readers in the 2011 book he co-authored with Grant Achatz, Life, On the Line, "If you are good, 49 percent of your decisions will be wrong. Even if you are great, something just short of a majority will be losers." Kokonas's essential point was that even the best traders, and Kokonas was very successful at the latter before becoming a hugely prominent restaurant impresario, are going to be wrong on a regular basis.
Icahn is no different. Though his billions once again speak to an intensely prolific mind when it comes to divining value, logic dictates that more than a few of his investments generate negative returns.
Applied to Mickelson, assuming the allegations about his trading history are true, the fact that he may have utilized Icahn's expertise means that he provided the marketplace with essential information. Icahn is a genius, and while there are vague laws concerning "insider trading," Mickelson's presumed trades brought precious information to the marketplace. What should bother readers are not the allegations concerning Mickelson, but instead insider trading laws that in the words of George Gilder blind the marketplace. How odd that we have laws that are explicit in their intent to deprive the marketplace of information that allegedly came from one of the world's greatest investors.
Gilder long ago wrote that "It is the leap, not the look, that generates crucial information." Gilder's brilliant insight there was rooted in Ludwig von Mises' observation that every economic act is a speculation. Whether we buy up property in a rundown area in order to build a restaurant, buy a team in a nascent sports league, design a phone that incorporates e-mail, video and texting via a touch screen, or yes, buy and sell shares in companies based on tips from wise minds, we are providing the markets with important knowledge that will better inform future allocations of capital.
In Mickelson's case, his alleged purchases, whether successful or not for him in the return sense, logically brought information provided by a remarkable investor into the markets. Whether Mickelson earned or lost a lot of money on them is really not the point; his leap with his earnings from golf brought transparency that redounded to other investors, and to the economy itself. To the extent that Mickelson lost money, investors gained for his trades revealing where capital wasn't needed. Assuming the opposite, investors and the economy similarly gained.
Taking this further, the markets and the economy need more intrepid investors of substantial means like Mickelson. Indeed, just as the rich supply capital to new endeavors through venture capital, private equity, and hedge funds, so are they the proverbial "venture capitalists" with their individual trades. Basically the rich, sometimes privy to information not available to you and me, dip their toes into the water with new information so that we don't have to. That they do, that they're risking their wealth through trades rooted in new information, means that we can subsequently enter the stock market far more informed than they were.
No doubt there's the potential for investors like Mickelson to capture first-mover profits, but the possibility of higher returns is their reward for risking much greater losses assuming the information is of low quality, or that it misunderstands the direction of the marketplace altogether. For naysayers to suggest none of this is "fair" is for them to misunderstand basic economics. It's also two-faced. Assuming Mickelson and others lose on trades, and it's fair to assume that any alleged trades completed with Icahn's information included some losers (if Icahn were always right, he would have a much higher net worth), is it also unfair that the rich often lose such that we're subsequently shielded from similar losses?
Mickelson has once again denied any wrongdoing, reporting about the matter seems to suggest that the allegations aren't provable as is, but the sad storyline here is that we live in a society in which Mickelson could possibly lose his good name for an alleged act that brings undeniable good to the markets and the economy. Insider trading is something wise minds should embrace, not decry.
Economies are powered forward by good and bad information about where limited capital can achieve its highest return. So while all indications point to an alleged scandal that is soon to blow over, we should all hope that sooner rather than later that the insertion of information into the marketplace is embraced. In short, we need more Phil Mickelsons assuming he did in fact trade on Carl Icahn's knowledge.