How To Use Insider Trading
- If key executives are buying stock it is usually a good sign. Don't be misled by single purchases, however
- The fact that a corporate officer is selling shares may or may not tell you something of value. However, if you see several key executives selling at the same time it might be worth taking a close look at the company's fundamentals again
- It makes a difference which company insiders are making the buys. Top executives (COB, CEO, CFO, COO, President) are the most informed, followed by officers and directors, with large shareholders the least informed as measured by their investment returns.
- As we look for messages in insider data, the following are important:
- How large was the trade (how many shares or the dollar value)?
- How much of an insider's holdings were included in the trade?
- Is there a consensus by more than one insider in the company making the same trade?
- Which officers in the company are making the trade?