Follow the Money - Are Insiders Buying Their Own Company Stock
In today's video, we are going to cover another item on my Investment Checklist.
To be a successful investor in the stock market, you need to do a lot of analysis in the beginning. This will help us put so many odds of having a successful investment in our favor. Once you have identified a great business and its offered at a great price, then the leg work is mostly over and we can let our money work hard for us.
Since there is a lot to look at during the investment research process, I have created a checklist so I don't forget anything. Each item is very important and if I miss just one of those items, it could lead to costly mistakes. Having an investment checklist also helps us to eliminate mistakes and repeat our success.
Today we are going to track the insiders. These are the Chief Executive Officers, Chief Financial Officers, Board Members, Presidents, etc.
Insiders know more about what is going on with their own company than you or I will ever know, so we need to see if they are buying shares of stock or selling their own company shares.
Insider BUYING is when the company insiders, file a form with the SEC when they want to buy or sell their own company stock. Since they are insiders, they have to notify the SEC and when they do, this becomes public information. This allows the small investors like us to see what the execs think of their own company going forward
If the executives are buying their own shares, and not just a small number of shares, that vote of confidence could mean good things are about to happen.
Selling their shares of stock is not always a bad thing. They could be selling shares to buy a house or a boat, to diversify their assets, or they can be exercising options before they expire. They may also be selling shares because they believe the stock is overvalued and its time to take some money off the table.
Its only bad when multiple C level executives are selling at the same time and they are selling large quantities of their total position. This could be a big red flag.
But, If they are buying shares, that is usually a good sign.
Insider behavior matters because research based on real-time signals has shown that a properly modeled picture of insider actions can provide the most accurate reflection of the prospects for the company, industry, economic sector, or even the stock market in general, going forward.
These insiders possess all the necessary skills and characteristics that one could use to describe the "successful" investor.
These include:
A deep knowledge and understanding of the company and/or industry
A demonstrated ability to produce success
The training necessary to understand risk and to control it
The wherewithal (capital) to take advantage of opportunities
A tendency to go against the crowd.
Insiders have exclusive information regarding the company so if they are risking their own money buying the stock, usually they have good reasons for doing so.
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