Start Using Insider Trading Activity in Your Investment Strategy
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Who is better qualified to evaluate a company's future potential than the men and women who run them? Why else would they be putting their own money on the line unless they were extremely confident that business is about to get better or their company is undervalued?
Insider transaction are reported on SEC form 4 within 2 business days of the transaction occurring.
Not all form 4's indicate that an insider necessarily has confidence in the company. For example, many times form 4's are only showing that an insider was given shares as a form of compensation. The most important insider trades are ones where the insider purchased the shares with their own money.
On average over 1,200 form 4's are filled every day, of those 1,200 only a small fraction are from insiders who purchased stock with their own money.
No, we filter the form 4's and will only alert you when an insider makes a purchase with their own money.
Just because an insider is purchasing more shares of their company does not necessarily mean they are overly confident in the future of the company. Small purchases could just be the insider adding to their retirement plan. When an insider is truly confident in the future of the company you will see them invest large amounts of money. Also, watch for how this transaction changes their total holdings. If an insider goes from holding 50,000 shares to holding 100,000 shares this 100% increase in their total holding is a great indicator that they are very confident in their companies future.
While insider purchases can be a good indication of future stock performance the same can not always be said about insider selling. Many executives have a large part of their compensation tied up in stock and selling shares can be looked at as cashing their paycheck. But be on the lookout for several insiders selling in a short time frame this can often signal rocky times ahead for a company.
On 7/10/17 a director at Dollar Tree (DLTR) increased his stake in the company by $330,850. Within 2 months the stock price had risen over 24% and within 4 months the price was up over 40%.
On 01/04/18 a Director at Nektar Therapeutics (NKTR) increased his position in the company by 50%. The next week the companies stock price increased by 18% following a positive update on their pipeline at a health care conference. Within 2 months the price had increased by over 75%
On 8/11/17 the CFO of Micron Technology (MU) Increased his position in the company. Within 2 months the price had increased by over 45%.
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