Investing in what the insiders buy
moneyrelations :: Feb.05.2008
Here’s an interesting article from Bloomberg: Insider Buys Exceed Sales, Signaling Market Bottom.
Oh really?
One of the investing strategies that people use is to track insiders’ buys and sells of its own company shares as reported to the appropriate regulating body (e.g. the Securities and Exchange Commission in the United States).
According to Wikipedia, an insider is defined as:
company’s officers, directors and any beneficial owners of more than ten percent of a class of the company’s equity securities
The train of thought is that because these insiders work for the company, they must be privy to information not known to the public. However, to avoid the perception of wrong doing, companies pre-announce the times during a year that employees can safely trade without being accused of illegal insider trading.
Can following the transactions of a company insider help the regular investor?
Sometimes, putting 2 + 2 together can get you 5. An insider can sell for any number of reasons. Maybe the proceeds are to be spent on a new mansion 
And insider buys may be a ploys to boost public confidence during a bear market or a sagging company.
However, as reported by the Bloomberg article:
The last seven times insiders bought more than they sold, between 1988 and 1995, the Standard & Poor’s 500 Index rallied an average 21 percent in the following 12 months
Maybe insider trading is a better buy than sell indicator… There are lots of information on the Internet to research including this Investopedia article.
Putting this notion out there, it’s an investment idea worth checking out what these insiders are buying.
In the news, Investing, Investing myths ::
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Insider buying has been a reliable indicator of the executive’s belief in the company’s business fundamentals. However, it has not always translated into a stock price appreciation. Insiders are human too and sometimes they end up buying when the stock in question is already at a inflated valuation
Therefore, insider buying while a valuable consideration should not be used in isolation for any stock purchase. Fundamentals should always be a deciding factor.
Hey Arohan,
Thanks for dropping in.
It sort of reminds me on company buybacks. Those aren’t guarantees either. It’s just more research to see if there’s any substance.