Insider Stock Trading – How to Interpret the Secret Information Revealed by Insider Transactions

I do not only monitor the insider stock trading of the stocks in my portfolio to be informed about the latest insider transactions, but I also use the insider stock trading data as a source of information to find new company’s which I could potentially add to my stock portfolio.

It is important to always think twice before adding a company to your portfolio if insiders are selling the company’s stock. Conversely, I like to see insiders buying more stock for their personal holdings if the company has been determined as undervalued according to my standards.

As you can imagine, insiders of a company know more about that company than shareholders who rely on publicly disclosed information. Because insiders are the first to become aware of sensitive information I always follow their actionsnot their words.

Peter Lynch, one of the most successful traders of all time, once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”

Always interpret the insider transactions in conjunction with the insider’s total holdings in a specific stock, i.e. what percentage of the insider holdings in a specific stock did he or she buy or sell? I find it very revealing to make it clear how many shares an individual insider has acquired or disposed in a certain period1 and at which prices these transactions were settled.

The best secret information is revealed when two or more members of the management team are buying or selling a stock at the same time and in significant numbers. As a result, substantial insider buying by two or more insiders is considered as a bullish signal, and substantial insider sales by two or more insiders is considered as a bearish signal.

I have created the following subpages for the insider stock trading section:

Subpage:  Description: 
Insider Stock Ownership  Which Exclusive Type of Stock Owners Are Your Fellow Shareholders.
I divide your fellow shareholders into 3 well defined insider stock ownership groups and
explain how I use this subdivision in the due diligence process of my stock investment
analysis
Company Ownership Search  5 Free Resources to Find Your Stock’s Current Shareholders. I
reveal 5 free resources to conduct your company ownership search, which all reveal different
insights into the stock holdings of the various ownership groups.
 
Insider Trading Rules  When do Insiders Need to Report Their (Change in) Stock Ownership.
Canadian and American regulators have both set different insider trading rules as to when
insiders need to report their initial filings and change in stock ownership. Read about it
here.
 
Insider Trading Canada  3 Free Resources for Tracking the Change in Canadian Insider
Ownership.
This article: “Insider Trading Canada” reveals the 3 best resources to find
detailed information about the change in insider ownership of a specific Canadian listed
company.
 
Insider Trading USA 

3 Free Resources for Tracking the Change in American Insider Ownership.
This article: “Insider Trading USA” reveals the 3 best resources to find detailed information
about the change in insider ownership of a specific American listed company.
 

Note: I recommend you to interpret the insider stock trading only as part of a company’s due diligence as a whole. Thus, don’t buy shares in a company just because two or more insiders are buying substantial amounts of stock and vice versa.

Note: Sometimes you will see insiders sell their shares which they have just acquired with the exercise of their stock options. Although this might result in substantial insider selling by two or more insiders, I do not implement this type of insider stock trading as a bearish signal, as they need to cover the income taxes payable on the share exercise.


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