How to Analyze Insider Stock Market Trading Reports
Ever since the Great Depression, the federal government has required corporate officers, executives and large shareholders to report their stock trading activity. This system helps prevent manipulation of stock prices. In addition, these people are forbidden from trading at certain times, such as when quarterly results are announced, unless the trade was an automatic trade planned well in advance.
legal insider trade information and other company financial information are available at SEC.gov/edgar. For information on insider transactions alone, minus the other financial reports and filings, you can use Insider-Monitor.com, which is compiled based on information from the Edgar site.
Other People Are Reading
Instructions
-
-
1
Look at insider transactions on stock websites by stock symbol first, then search by "Insider transactions" or a similar phrase.
-
2
Notice insider buys, which are more significant than insider sells. Executives sell stocks for many reasons: to pay taxes, go on vacation, buy a car or house, pay medical expenses or move money to a savings account or certificate of deposit. Executives generally buy stock for the same reasons that everyone else buys stock, because they believe the stock at the current price is a good investment.
Insider sells are more common than insider buys, partly due to the fact that shares of stock are often part of executive and board member compensation.
-
-
3
Pay attention to the number of officers and majority shareholders making a purchase within a short period of time. This is common sense. If a single executive makes a purchase at XYZ company, but five insiders make a purchase at ABC company, it suggests that the stars are better aligned for ABC company's future stock price potential.
Consider not only the number of people making purchases, but the makeup of that group. If board members, executives and majority shareholders all make purchases at the same time, that is a powerful message.
-
4
Look at the purchase amount in relation to the insider's total holdings. A large purchase for one well-heeled investor might be be pocket change when the insider has total holdings that rival a Bill Gates or a Warren Buffett. Compare the dollar amount to the total value of the insider's shares. Alternatively, you can compare the number of shares in this particular purchase to the insider's total number of shares.
-
5
Look at historical performance of insiders. At what prices has a particular executive purchased shares in the past? How has the stock performed since then? Is this particular executive successful in his timing and company stock investments?
-
6
Consider the position of the person(s) in question. Put a strong weight on the investments of chief financial officers, chief executive officers and chief operating officers. They tend have the most knowledge about company prospects.
-
1
Tips & Warnings
Never take "exact" stock tips from anyone (including brokers, family members, wealthy business folks or poor business folks). You can, however, take "general" advice regarding the outlook of an industry, sector, country or a particular company. These should be starting points for your decision-making process, not directives to immediately make a trade. Any sort of advice or information you take is best when from an independent source's report. These reports can usually be obtained through your stock brokerage company or at your library.
References
- Photo Credit Thinkstock/Comstock/Getty Images
