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Profiting from Insider Trading



Tracking Insider Trading Real-Time


Insider behavior matters because research based on real-time signals has shown that a properly modeled picture of insider actions can provide the most accurate reflection of the prospects for the company, industry, economic sector, or even the stock market in general, going forward.

This makes perfect sense from an intuitive perspective. Corporate insiders possess all the necessary skills and characteristics that one could use to describe the "successful" investor. These include: A deep knowledge and understanding of the company and/or industry; A demonstrated ability to produce success; The training necessary to understand risk and to control it; The wherewithal (capital) to take advantage of opportunity when it presents itself and finally; A tendency to go against the crowd.

In general, insider buys are more useful. Since insiders have exclusive information on the company performance, if they are risking their own money on the stock, usually they should have good reasons, especially when several insiders buy the stock at the same time.

Why track insiders?

Insider behavior matters because research based on real-time signals has shown that a properly modeled picture of insider actions can provide the most accurate reflection of the prospects for the company, industry, economic sector, or even the stock market in general, going forward.

This makes perfect sense from an intuitive perspective. Corporate insiders possess all the necessary skills and characteristics that one could use to describe the "successful" investor. These include: A deep knowledge and understanding of the company and/or industry; A demonstrated ability to produce success; The training necessary to understand risk and to control it; The wherewithal (capital) to take advantage of opportunity when it presents itself and finally; A tendency to go against the crowd.

Further, insider buys are especially useful. Since insiders have exclusive information on the company performance, if they are risking their own money on the stock, usually they should have good reasons, especially when several insiders buy the stock at the same time.

What patterns of inside trading is really a basis for serious consideration of a specific stock?

Insiders may file SEC Form 4 for stock purchase because of reasons other than they think their stock may go up: they may have company stock compensation, or they may have to excises their stock options that are expiring soon. Generally, we should look for stocks that have several insiders, better if CEO or CFO is included, buy the stock at the market price within a short period of time, say 3 days. Each transaction should have a meaningful amount of shares and total proceeds, e.g., more than 500 shares and $1000. Further, check how many stocks the insiders have already own. If the transaction is the insider's first purchase, that may be because he/she just joined the company and is required to acquire some stock. Other than the transaction itself, investors should also check if the price has already moved a lot after the insider buy and if the stock itself is liquid so that a big transaction won't move the market badly.

An example is CRAY. On 7/29/04 2:26pm, while the stock was trading at $3, the company's CEO and CFO had bought 45,000 shares in separate transactions. The next day the stock closed 6% higher. The next Monday rumor began on the street that IBM was going to buy CRAY for $6 a share cash, and the stock closed at $3.43, a 14% gain in two trading days.

What patterns of selling indicate a problem with a stock?

Insiders sell for different reasons. Bill Gates was continuing selling MSFT not because he's pessimistic about the stock but simply because he had too much stocks and he needed more cash. However, when several key insiders dump the stock continuously in a short period of time, each with big amounts, that may be a warning signal. Especially, avoid at any time stocks that have huge multiple insider sells or sell them short.

There's a company called InsiderCow, and they provide tracking of insider trading in real-time. They provide latest insider buys sells charts, and a data screener.

Click here to review more information about InsiderCow


Disclosure: No Stocks Posted - No Positions