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Identifying Insider Buying

There is evidence to believe that insiders do beat the market. But how does one find out what insiders are up to? That's what this post is about.

The quick and easy way is to use an aggregator like Yahoo! Finance or Insider Cow, which compile this data and make it readable. For example, this page shows you the insider transactions of Best Buy.

But sites like Yahoo! often get things wrong, and in this way they can lead you astray. Therefore, the most surefire way of getting accurate info is to read the insider filings yourself. For that, you'll need to navigate to the SEC website's Company Search page.

There, you will be asked for your search parameters. Pay attention to the field titled "Ownership Forms 3, 4, and 5". By default, this will be set to "exclude", but these are the forms you want to see if you're interested in insider transactions. Select the "include" button before hitting "search".

As an example, consider the insider filings of Taitron Components, available here.

Opening the Form 4's, we see that both the Chairman and CEO have been adding to their positions in recent days/weeks. Last time they did this was in July of 2010, subsequent to which the stock rose some 50% over the following few months.

Of course, Taitron (or any other stock) is not undervalued just because insiders are interested. But this information does arm you with the knowledge of what management may think about the stock.

Disclosure: Author has a long position in shares of TAIT

This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the feed.