<p>I'm an undergrad engineering student who is most likely going into consulting. I also follow the stock market and invest the pennies that I can.</p>
<p>I am very interested in long-term value investing, and have a question/concern:</p>
<p>If I do consulting work for a client's firm, and in the course of my work I discover that that firm has a strong business model, good management, and is financially strong - and in doing my homework find that that firm is publicly traded and that the stock seems undervalued, would I be allowed to purchase that stock? Alternatively, if I find that that firm is a mess when compared to its competitors, and decide to look into and ultimately invest in one of its competitors, is that a problem?</p>
<p>I understand the obvious cases of insider trading (such as an impending bankruptcy, merger/acquisition, investigations, etc) and trading based on that information, but what about the smaller scenarios like knowledge that the firm is entering a new market, or is planning to dramatically reduce costs by implementing some new technology to its manufacturing processes? </p>
<p>Also, do consulting firms (from boutique firms to MBB) have any blanket policies forbidding investing in a client's company to prevent potentially sticky scenarios?</p>
<p>I know this might be a little off-topic, but I figure a lot of you are/will be consultants and have some experience/insight to offer.</p>
<p>Yes. In general, the policy is that you can’t purchase client stock. In some firms you can’t buy a firm’s stock until 2 years after they’re no longer a client, in some cases it’s never. In some of the large firms, you’re only restricted from clients you’ve served.</p>
<p>In one well known firm (that shall go unnamed), non-partners must apply and receive preauthorization for all stock transactions, even if the company is not a firm client (but mutual funds are OK) and the partners must place their stock assets in a blind trust. </p>
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<p>Is that information public knowledge? If not, it’s insider trading. And the last thing a consulting firm wants is an insider trading scandal (consulting firms require trust with sensitive information) so to even avoid the chance of a rogue criminal, they put policies in place to indemnify the firm.</p>
<p>Makes sense. I’m reading a book about how to find great stock opportunities based on your (innocent) personal experiences with companies you work for/with/are a customer of. For example: you work at the factory of a small publicly traded firm, and notice that there is a lot more production going on, and through further research (based on info int he public domain) you discover that investing in your company might be a great opportunity before the masses have noticed. I guess it makes sense that consulting gives you a little too big of an advantage.</p>
<p>If you somehow concluded from my post that I am seeking to function in the grey area, I assure you that I am not and I apologize for not making that more clear.</p>
<p>Insider trading is not an issue most people who are not in relevant fields are very informed on, myself included. That is why I made this post. Thank you for informing me!</p>
<p>If you think the book I am reading sounded like a how to guide to insider trading based on my description, it definitely isn’t. It’s “One Up on Wall Street” by Peter Lynch and it’s a book widely read and recommended by the main-stream investing community.</p>