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Insider Buying is a powerful metric for identifying stocks worth a closer look.
We lunched this board to help investors find ideas where management was putting its hard earned money at risk by buying their stock - like IH members do! - as well as highlighting when management takes its money off the table.
The basic premise is that management has a great view on a company's prospects and therefore the timing and magnitude of their buying and selling can provide a window on what they expect from the stock going forward. Who would buy shares at a price when they thought they could pay less in a few weeks or months? Also, who would sell if they felt the share price would continue to rise?
Of course there are many other factors that drive insider activity and its timing - such as the financial liquidity of the executive or director, the extent of their existing holdings and relative price paid; the need to pay for a wedding, tuition, a house or a divorce. Also, there are very real limitations placed on management as to when they are able to buy and sell the shares of their company. Purchases are limited to "trading windows" that open after reporting quarterly results and shut as a Company nears the end of each quarter. Further, management cannot execute trades when in possession of "material non-public information" and must wait until that information has been disclosed or is no longer relevant. There is also a short swing rule that prevents management from selling stock for 6 months after any purchases, and I believe also prohibits buying for six months after any sales.
Finally, for the cynic in the crowd - we must consider the "signaling effect" of insider activity - that might cause purchases to be made by management more to demonstrate confidence and serve as a catalyst for the share price - rather than solely on the basis of the price being "just to good to pass up" at that moment. The size of insider transactions and their relative size compared to existing holdings (including options, warrants and unvested stock) - also plays a role in helping to assess the predictive value of insider activity.
But we can discuss this all here - and I thank you in advance for sharing info on insider activity for our mutual benefit - as well as using this forum to pose questions - that I we can all help answer.
Insider Buying Moderator - March 1, 2018
We lunched this board to help investors find ideas where management was putting its hard earned money at risk by buying their stock - like IH members do! - as well as highlighting when management takes its money off the table.
The basic premise is that management has a great view on a company's prospects and therefore the timing and magnitude of their buying and selling can provide a window on what they expect from the stock going forward. Who would buy shares at a price when they thought they could pay less in a few weeks or months? Also, who would sell if they felt the share price would continue to rise?
Of course there are many other factors that drive insider activity and its timing - such as the financial liquidity of the executive or director, the extent of their existing holdings and relative price paid; the need to pay for a wedding, tuition, a house or a divorce. Also, there are very real limitations placed on management as to when they are able to buy and sell the shares of their company. Purchases are limited to "trading windows" that open after reporting quarterly results and shut as a Company nears the end of each quarter. Further, management cannot execute trades when in possession of "material non-public information" and must wait until that information has been disclosed or is no longer relevant. There is also a short swing rule that prevents management from selling stock for 6 months after any purchases, and I believe also prohibits buying for six months after any sales.
Finally, for the cynic in the crowd - we must consider the "signaling effect" of insider activity - that might cause purchases to be made by management more to demonstrate confidence and serve as a catalyst for the share price - rather than solely on the basis of the price being "just to good to pass up" at that moment. The size of insider transactions and their relative size compared to existing holdings (including options, warrants and unvested stock) - also plays a role in helping to assess the predictive value of insider activity.
But we can discuss this all here - and I thank you in advance for sharing info on insider activity for our mutual benefit - as well as using this forum to pose questions - that I we can all help answer.
Insider Buying Moderator - March 1, 2018
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