The degree to which insider transactions actively matters to the average investor largely varies, in my view, with the times. When times are good, insiders can often choose to sell a portion of one’s stock options for that new boat or new car, keeping some exposure to their company as needed.
Some will want to diversify their exposure, or give shares to charity or to their children, all altruistic reasons to sell stock.
When times get tough and stock prices decline, however, keeping an eye on such transactions can be more enlightening, in my view. When insiders are eliminating positions during a stock price freefall, I personally become nervous with holding such a stock.
This information is always imperfect, so one cannot make investment decisions on such data alone. However, one ought to observe this data as a useful complement to traditional fundamental equity analysis when making investment decisions.
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 glean pertinent information to assist in investment decision making.
Invest wisely, my friends.
