Should you track when insiders sell shares in big companies or small companies?
Isn’t it interesting that some people have more information than you and make more money regardless of we are in recession or not?
If improving your financial situation is on your “to-do” list, then the Financial Mentor Focus program is ideal for you.
Investopedia offers this awesome article on the value of tracking insider movements.
Tips for beating the market tend to come and go quickly, but one has held up extremely well: if executives, directors, or others with inside knowledge of a public company are buying or selling shares, investors should consider doing the same thing. Research shows that insider trading activity is a valuable barometer of broad shifts in market and sector sentiment.
But before chasing each insider move, outsiders need to consider the factors that dictate the timing of trades and the factors that conceal the motivations.
KEY TAKEAWAYS
When company insiders start buying shares of the company, it may be a signal for outside investors to follow suit, but looking at which insiders are acting matters.
One of the greatest investors of all time, Peter Lynch, was noted as saying that “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
Information of insider activity can be found for free on several financial websites.
Tips for Using Insider Data
Investors should consider the following guidelines when analyzing specific insider trading situations:
- Some insiders are better than others.
Directors know less about a company’s outlook than executives. Key executives are the CEO and CFO. People running the company know the most about where it is heading. - A lot of trading is better than a little.
One or two insiders at a big corporation do not make a trend. Three or more provide a better indication that something is happening. Generally speaking, solitary trades are unreliable. - People at small companies know more
At small and mid-sized companies, virtually all insiders are privy to company financials. At big corporations, information is more dispersed and typically only the core management team has the big picture. - Stay the course.
Evidence suggests that insiders tend to act far in advance of expected news. They do this in part to avoid the appearance of illegal insider trading. A study by academics at Pennsylvania State and Michigan State contends that insider activity precedes specific company news by as long as two years before the eventual disclosure of the news.
Let’s meet to discuss your investment strategy. Book an appointment here.
