I am willing to concede that company insiders know more about their businesses than I could ever learn about it by reading financial statements. This is why I use insider trading as part of my assessment critieria. The fact that all company insiders are not created equal should come as no surprise- who would you trust to know more about a business, the chief accountant or the janitor?
- Analysis is done based on forms provided to the SEC (US data only then).
- Analysis is done only against trades where the price on the form can be confirmed as a valid price for the day of the trade. This eliminates errors on the filing form the SEC missed.
- Purchasers may have sold off stock, my analysis disregards these sales and assumes the investor still holds the stock. Investors sell stock for all sorts of reasons, but only ever buy them for one reason.
- Derivative trades are disregarded as they are not always true unsolicited trades.
- Analysis is only done against scale companies (companies that can be found on Yahoo or Google finance pages).
Defining A Good InsiderA good insider buys stock in a company when it is undervalued. The insider is proved to be right when the stock price rises consistently and only rarely decreases below its purchase price. We are able to analytically find this by using the following analysis criteria on the data:
- high number of unique individuals who meet the role. If there are only a few people who have the same job title it is not an accurate sample set.
- trades in every quarter from 2004 until present. A role that suddenly pops on the scene in the last quarter has an unfair advantage against those that have been trading consistently since 2004.
- high minimum return. Rule 1- don't loose money, rule 2 read rule 1.
- high maximum return. We like to make some money too.
ResultsTop 3 inside trader roles.
|Role||# of Insiders||Min % increase||Max % increase|
|CHIEF SCIENTIFIC OFFICER||3,053||-17.68%||73.03%|
How to interpret the tableThere are 472 individuals who have purchased stock between 2004 and now and have indicated that they are a "marketing officer" at their company. If you had bought the same stock as these individuals every time they purchased stock, and evaluated your portfolio at the end of every quarter between 2004 and now, your entire portfolio would have dipped 1.3% below its purchase price once, and would have risen to a maximum of 557.52% above its purchase price once.
Using This DataDon't treat all insider trades equally. There are a number of sites who can provide you the insider trades of the day, see my article for more on that here, or you can also watch for my posting on insider trading on my site, an example. As I say in my investment philosophy you should use this data as the start for your investigations, it can help you reduce the risks associated with investing.
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