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Why Is Insider Trading Important
- "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise" (Peter Lynch, one of the greatest investors of all time)
- Insiders know their industry, in particular the company they are managing.
- Insider trading can be profitable only if securities prices move. Therefore, insiders hoping to trade on inside information may try to get the price to move by cutting the company's costs, seeking new products, and so on. While such actions benefit the insider, they also benefit the firm's security holders as a group.
- No one invests to lose money, so do corporate insiders. They are prevented from buying and selling their company stock within a six-month period: therefore, insiders buy stock when they feel the company will perform well over the long-term