The Information Gap
A week passed again.
The same classroom, the same seats.
But the mood was different from last time.
That was only natural, since everyone had come here carrying profit rates instead of report cards.
Before class began, someone leaned in from the seat beside me and whispered, “Sanha. Tell me just me. I won’t tell a soul.”
It was Victor, who had just come from a different class than mine.
Victor had messed up his course registration and ended up with a few classes that overlapped mine, which had shifted his day and night schedule completely out of alignment.
Because of that, when he revised his portfolio, a few final positions drifted off course, and in the end his return changed as well.
Victor dragged his chair closer and whispered, “What’re you at this week? The guys who followed you into energy stocks last week are all crying and whining because they got trapped. They’re all saying, ‘You’ve already cashed out, haven’t you—’”
“······.”
Just as I was about to answer, someone sat down hard beside me.
Long blond hair with a slight curl, blue eyes like the sea at some foreign resort.
Grace Fairfax said to me, “Hello?”
“Hello.”
“······.”
“······?”
She seemed like she wanted to say something to me.
But with no common topic to work from, she looked as though she didn’t know how to begin.
I took the initiative and made it easy for her to talk.
“How’s your return?”
“Mm!”
Grace let out a breath as if she’d just found her footing.
“Ever since you hit +35.8% last time, everyone’s been out of their minds.”
“The whole classroom feels like it’s turned into a day-trading casino.”
“They don’t even know what they’re buying. They just chase whatever spikes. Pathetic.”
“I guess everyone got impatient.”
“I didn’t.”
Grace pulled a few sheets of paper from her bag and showed them to me.
“I’m over +20% this week.”
That was already twice the return Professor Cromwell had managed in the first round.
She gave me a brief explanation of her portfolio.
“I got out of energy early. Instead, I rotated into industrial cycle names. Caterpillar, Union Pacific, Alcoa, Deere & Company.”
I analyzed the combination quickly in my head.
Caterpillar was construction equipment, Union Pacific was rail transport, Alcoa was aluminum raw materials, and Deere was farm machinery.
All of them belonged to the heavy industry, raw materials, and transportation sectors.
They were exactly the kinds of stocks that tended to rebound first when the economy bottomed out and began to recover.
Grace’s eyes glittered with anticipation.
“What do you think?”
“The concept is clear. You’re riding an industrial cycle rotation strategy. You’re aiming for the first wave of recovery after the trough.”
“Exactly. As expected, you see it.”
The corners of Grace’s mouth lifted.
“But I think your timing’s too early.”
“······What? How?”
“Right now, rail transport names like Union Pacific still haven’t shown any sign of freight volume recovery. For industrial demand to come back, interest rates need to fall further, but until Greenspan actually cuts again, heavy industry is going to struggle. Same with Alcoa. Aluminum prices on the London Metal Exchange still haven’t put in a proper bottom. Inventories are piling up, demand is weak. Caterpillar and Deere need support from construction activity or agricultural prices, and that signal hasn’t shown up yet either. That’s my assessment.”
Grace blinked, stunned.
I added one last thought.
“Your portfolio, in a way, is like this: the direction is right, but the starting line was drawn too far ahead. You’re not at the beginning of the cycle right now—you’re in the waiting zone before the cycle begins. It feels less like a runner taking off and more like someone sprinting before the starting gun. If you keep going like this, it’ll be hard to maintain that return.”
“But this was all advised by investment professionals at GreenHell.”
There it was—the classic move of someone backed into a corner: The experts said the same thing.
I had ground my way from the bottom to the top in Wall Street, and I knew their instincts far too well.
Even if the market eventually reached the prices those experts predicted in their bullish reports, it would still take years.
That was something anyone who had actually traded a little knew very well.
I didn’t bother arguing further.
“Well, we’ll see.”
“Hold on. I’m not finished yet. I—”
Just as Grace was about to continue, the classroom door opened.
Professor Warren Cromwell walked up to the lectern.
The moment he set down his briefcase, he began speaking.
“Last week I said I’d take on more risk.”
How desperate did he have to be to bring that up before class even started?
The teaching assistant expertly placed a transparent sheet over the OHP.
[WEEK 4 PERFORMANCE REPORT]
Bold letters announcing the fourth week appeared.
[Professor Warren Cromwell – Cumulative Return: +32.4%]
A staggering cumulative return of 32.4%!
The classroom rustled.
The assistant read the contents of the sheet.
“This week, the portfolio was not diversified. Instead, the focus was on a handful of specific events. You broke your previous rule of keeping any single stock under 10 percent and loaded up to 20 percent into one name.”
This time, Professor Cromwell took the microphone himself.
“The market is not a textbook. Sometimes, rather than orthodox diversification, it’s more efficient to bet on a single high-probability event. For example, last week there was a rumor that the pharmaceutical company Amgen would soon release Phase III clinical trial data for a new drug. The story came from a corner of the Wall Street Journal, a few broker reports, and telephone lines in securities firm dealing rooms, all at once.”
The students began taking notes.
Cromwell scanned each of them as he continued.
“Most of you would have thought to wait for the results. Wait for the filing, the newspaper headline, and the analysts’ ‘Buy’ recommendations. But by then the price is already in. I put twenty percent of all available capital into the stock the very next day after the rumor surfaced. And the result? Two days later, the data was released as positive, and the share price gapped up fifteen percent at the open. The key is to enter before the good news is announced. Information is written into the price before it ever appears in The New York Times. Price always moves faster than interpretation.”
For a while, the classroom was filled only with the scratch of frantic pens.
After a brief silence, Professor Cromwell turned back toward the OHP.
The assistant took the microphone again.
“Then I’ll announce the students’ returns.”
Everyone swallowed hard.
Had anyone beaten Professor Cromwell’s overwhelming return?
“Paul, -8.1%. Jane, -12.5%. Chris, -5.7%······”
Red negative figures kept climbing across the OHP screen.
The report was far more miserable than last week’s.
Soft groans broke out all over the room.
“Damn it, I bought the energy stocks Sanha bought last time—why was I the only one who got crushed?”
“I shorted it and got squeezed. I want to die.”
“Last time I got impatient and bet only on the high-risk names because I wanted to follow the professor’s return, and then······ sigh······”
From the seat beside me, Victor was quietly tearing at his own hair.
His fatal mistake had been failing to cut Pan Am and then averaging down until the very end.
Just then, Professor Cromwell cut off the assistant.
“Wait. Does anyone know why everyone’s performance was worse than last week?”
No one answered.
“Because you were trying to win. Trying to win the wager, trying to beat the person in the next seat. Loading up risk without analysis isn’t investing. It’s gambling.”
Cromwell’s gaze moved slowly across the students.
“Remember this. Risk is not about size; it’s about control. What matters is not reckless offense, but controlled aggression.”
His eyes stopped on Grace.
The assistant spoke again.
“Grace Fairfax. Cumulative return: +21.8%.”
Amid all the losses, it was the one bright result.
Cromwell nodded.
“Good. Miss Fairfax. Explain to everyone how you managed the portfolio.”
Grace stood.
“I used an industrial cycle rotation strategy. I targeted the first rebound after the economy bottomed out and focused on Caterpillar, Union Pacific, Alcoa, and Deere & Company.”
“Hmm.”
Professor Cromwell folded his arms.
“The direction isn’t bad. Industrials, raw materials, transportation, farm equipment. They’re the sectors that rebound first at the beginning of a recovery. The concept is clear enough.”
Grace’s expression loosened slightly.
But Cromwell’s next words tensed her right back up.
“But is this the right timing?”
“······.”
“Railroads like Union Pacific need signs of freight volume recovery before they move. Alcoa needs the London Metal Exchange aluminum price to confirm a bottom, but it’s still too early. Caterpillar and Deere need support from construction activity or agricultural prices, and right now they don’t have it. Until Chairman Greenspan cuts rates again, I don’t think heavy industry is a particularly efficient choice.”
“······!”
Grace’s eyes widened.
I could feel her gaze spear into my profile from the seat beside me.
From the other side, Victor whispered very quietly, “Sanha. Did you and the professor compare notes or something? The analysis is exactly the same. I’m scared. This isn’t some kind of Eastern magic, is it?”
Then the assistant called the final name.
“Lee Sanha.”
Now the whole classroom was looking directly at me.
Front rows, back rows, even the balcony.
Some people closed their notebooks and turned fully around to watch me, while others had already pulled out calculators and were tapping away at something.
The assistant said, “Second-week cumulative return. +55.1%.”
At that instant, gasps burst out all over the classroom.
“······55 percent?”
“That’s impossible.”
“What, do you have insider information or something!?”
“That’s twice the professor’s return.”
After a beat, Professor Cromwell scratched his head.
“Fifty-five percent? Mr. Lee. How did you arrive at a number like that?”
“This week I focused on M&A and special situations—event-driven strategy.”
I spoke slowly.
“I targeted arbitrage around merger announcements, asset sales from companies under bankruptcy protection, and rumors of restructuring.”
At my explanation, a silence settled over the classroom.
“······.”
“······.”
“······.”
My classmates stared at me blankly.
Victor was one thing, but even Grace had her mouth slightly open.
Professor Cromwell broke the silence.
“Mr. Lee. Could you explain in a little more detail? How does a private investor obtain M&A or special-situation information in real time?”
“You’re absolutely right, Professor. Private investors are forced to rely on newspapers and broker calls, so their information channels are limited.”
“Exactly. Then how?”
“That delay is precisely the opportunity.”
The 1991 market still hadn’t seen internet portals or personal Bloomberg terminals become commonplace.
Information spread slowly, through newspapers, broker phone calls, and fax machines.
Between the price and the disclosure, there was a gap. I had pried my way into that gap.
Professor Cromwell uncrossed his arms and leaned forward.
“Could you come up front and explain that?”
“Yes.”
I walked to the blackboard and took up a piece of chalk.
“Let’s break the flow of information down step by step.”
I began writing numbers on the board.
-Step 1: Event occurs → Step 2: Filing submitted → Step 3: Media report → Step 4: Private investor becomes aware-
Moving the chalk as I spoke, I said, “When an event like an M&A announcement or a bankruptcy protection filing occurs, the company submits a disclosure to the Securities and Exchange Commission. That’s step two. But the fact that the filing is submitted doesn’t mean everyone knows immediately.”
“Continue.”
“The disclosure is physically submitted to the SEC office. In paper form. It gets recorded on microfilm, and securities firms or law firm research teams either go all the way to Washington, D.C. to check it themselves or receive it through an information service company like Disclosure Inc. That alone takes several hours to a day.”
From the back, I heard someone drop a pen.
“In the meantime, a paper like The Wall Street Journal or The New York Times publishes the story. That’s step three. But newspapers have print deadlines, so they’re only distributed the next morning. And most individual investors only realize, ‘Oh, that happened~’ after they’ve read the paper. That’s step four.”
Professor Cromwell nodded.
“Then which step do you move on?”
“Between step two and step three.”
“How?”
“I subscribe to the Disclosure service I mentioned earlier.”
The classroom stirred.
Cromwell looked around at the students with a strange smile.
“Does anyone know what Disclosure is, as Mr. Lee just mentioned?”
Then Grace shot her hand up.
“It’s an information service company that collects SEC filing documents and provides them for a fee. It’s been operating since 1968, and it’s mostly used by securities firms, law firms, and institutional investors. Individuals can subscribe too, but it isn’t cheap. Around five hundred dollars a month.”
“Five hundred dollars?”
Victor muttered from beside me.
“That’s more than our dorm rent for a month!”
I shrugged.
“Exactly. But information is worth money.”
I went on with the explanation.
“Disclosure collects key documents filed with the SEC every day and sends them by fax or mail. You can receive them the evening of the filing day or the next morning. At least a day earlier than the newspaper.”
Key filings like 8-Ks, 13D reports for major holdings, merger-related S-4 documents······ those were the code numbers I had tracked.
Back when I worked on Wall Street, it had been so routine it was almost laughable—like making a cup of coffee in the break room the moment I arrived at work.
Of course, back then the digital tools made it far easier than this.
Meanwhile, Professor Cromwell was marveling without restraint.
“So because you already know the filing contents before the newspaper comes out, the game becomes far too easy?”
“That’s right. Then I call my broker and place the order before the market has digested the information.”
“And you’re just laying bare that sort of trade secret?”
“Even if you receive the report first, it’s useless without the ability to analyze it. What good is it to get the test answers in advance? You still have to be able to read them and copy them down.”
“Ha, I see. Very interesting. Was there any process during this work that stood out in particular?”
“Yes. Last Tuesday, AT&T filed with the SEC to acquire NCR. It was around four in the afternoon. I received the documents by fax through Disclosure at seven that evening, verified the contents, and bought NCR stock before the market opened the next morning.”
“And the result?”
“The Wall Street Journal ran the story on Wednesday morning. The moment the market opened, NCR gapped up twelve percent, and I sold early in the session.”
“Remarkable. But Mr. Lee, how do you manage to pay the five-hundred-dollar monthly cost as a student?”
“I have a side job. My family runs a gas station. I help out there and get paid for it.”
“Your family runs a gas station? And you’re doing that from this far away?”
“No, Garden Queens is far away. What I mean is that we set up a system for gas stations and receive royalties in return.”
At my answer, Cromwell burst out laughing.
“You really do want to make money. That obsession is impressive.”
He looked over the classroom and went on.
“Did you hear that, everyone? Mr. Lee used the lag in information. While others sat around waiting for the newspaper to arrive, he stepped ahead and bought paid information. That is an information edge. The market being efficient is only true when everyone has the same information at the same time. But reality isn’t like that. Information spreads unevenly. The one who exploits that gap earns the excess return.”
Cromwell looked back at me.
“Mr. Lee. One last question. Can other people follow this method too?”
“They can. Anyone can subscribe to Disclosure. However······”
“However?”
“There probably aren’t many people willing to pay five hundred dollars a month. And they’d also need the discipline to check the faxes every day, read the documents, and analyze them. For most people, it won’t be the five hundred dollars that’s the issue—it’ll be that the effort is too annoying.”
A few students in the classroom lowered their heads, looking uncertain.
Most of the students here probably wouldn’t find five hundred dollars a month especially burdensome.
They simply didn’t have the intelligence or the persistence to read securities reports, analyze them, and arrive at the answer.
Cromwell smiled and nodded.
“Most people want excess returns without doing the extra work and paying the extra cost required to earn them. Mr. Lee, excellent.”
“I was lucky as well.”
“Luck is skill too. Still—good grief. This puts me in a difficult position. If I want to save face as a professor, it seems I’ll have to spend more time on mock stocks than on preparing for class.”
That light joke from Professor Cromwell eased the tension that had been hanging over the classroom.
He stroked his chin as though considering a countermeasure and went on.
“······That said, I can’t back down easily. There are still two weeks left, so let’s settle this within that time.”
“I’ll do my best.”
“Honestly, you’re not easy. This time I’ll need to find a different route too.”
I agreed with that.
Somewhat unexpectedly, I had been making my stock investments the orthodox way until now.
In other words, I had barely used the knowledge from before my regression.
But now the time had come.
Because one of the huge moves I remembered from my previous life was finally coming right around the corner.
······Shall I really start making this game bigger?
A board so large it would make everything up to now look like penny-ante play.
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