Would it be the draft minutes of the last meeting between the Chancellor and the Governor of the Bank of England? An advance copy of the latest confidential advice from the Independent's economic columnist, Gavyn Davies of Goldman Sachs? Or perhaps a secret corporate plan from a large British company?
All these might make you think you had some valuable information - as indeed you would, in the sense that the information could be sold profitably to somebody, somewhere in the financial markets.
But could you make any money from by basing your investment decisions on it? The answer, almost certainly, is that you could not - and it would be rash even to try.
This is not just a moral or legal issue about the merits of insider trading. Research by behavioural scientists has repeatedly shown that one lesson ordinary investors are most reluctant to accept is that their privileged information is, in practical terms, much less valuable than they think it is.
We all like to believe we have an edge on the next guy, but turning that edge into profit is another matter. More often than not, our superior knowledge turns out to be neither as superior nor as valuable as we imagine. And if it concerns the direction of the market or the economy, it is usually of no value at all.
You don't have to take my word for it. Listen to Warren Buffett, the American investor: "If the Fed chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years," he says, "it would not change one thing I do."
The reason is not just that Mr Buffett doesn't, wisely, invest on the basis of macro-economic trends. Even if he did, his point is he couldn't be certain whether what he had been told about Fed policy was good or bad. Peter Lynch, another successful US fund manager, makes the same point about insiders' tips in his autobiography, One Up on Wall Street.
Are these great investment gurus having us on? No, I don't think so. To make money from good information, you have, clearly, to know its significance. But that alone is not enough. You must also know what the rest of the market already thinks about the subject at issue - and whether what you know will be outweighed by information of another sort. And that is nothing like as easy to work out.
Even the blindingly obvious may already be more widely known than you think. Say you were to find out that the Chancellor and the Governor had agreed to raise interest rates at their last meeting. That must be bad for gilts, right? Interest rates up, bond prices down - simple textbook stuff.
Well, up to a point. Are you sure you know where the rest of the market is on that issue?
Every week in newspaper offices we stumble across examples where supposedly new information has the opposite effect to that we expect. Smart investors like George Soros have made a rich living out of such contrarian insights.
One nice recent example is the great row about the sale of government shares in the electricity generators in March. The Stock Exchange's chief executive, Michael Lawrence, has taken the Government to task for failing to disclose in the prospectus its knowledge - still not public at that point - that the regulator had suddenly decided to impose a tough new pricing regime on the privatised power distribution companies.
lt was, obviously, relevant and germane information to the issue. Shares of the distribution companies fell 15 per cent in one day when the news finally came out. You can be sure that nobody, inside or outside the Treasury, thought it would be positive for the generating companies, either.
Yet what has happened since? The generators' shares are up 10 per cent.
If even those clever Treasury chaps didn't realise the true value of their inside information, how much less a chance do the rest of us mortals have? The moral is: stick to your level of competence.Reuse content