Investors often take notice when insiders in publicly traded companies buy or sell stock in companies they manage. These moves are often indicative of the belief of insiders about the ability of a given company to outperform, or underperform.
Thus, tracking the disclosed transactions by insiders is a practice prudent investors ought to engage in. Many already do.
Investors should pay extra attention in a few insider trading scenarios. One key example is when a group of insiders at a specific company, or at a group of companies operating in the same sector, buy or sell stock around the same time and in large quantities.
In these cases, it may be advisable to hedge one’s position or add/trim an existing position either directly or through the use of options or ETFs tracking the specific sector in question. Each situation is unique, and insider transactions are just one piece of information to be utilized in such decisions. However, this information can indeed prove to be valuable.
As always, please remember to consult with a certified financial advisor into your own homework before making investing decisions. Insider buying and selling activity is not necessarily indicative of the future performance of a given company’s stock price, and insiders regularly buy or sell positions in companies they own or manage for reasons other than expectations of future stock price performance.
Analyzing insider transactions in a given stock is one tool of many to gain pertinent information to assist in investment decision making.
Invest wisely, my friends.
