It’s a fact that many tips exist when it comes to insider trading. However, there is still a single tip that continues to play a huge role in investing and that is using insider trading knowledge to your advantage, especially when you hear about a company’s executives making trades.
Still, prior to taking this route, it is important to examine all of the indicators that control a financial trade’s movement and what governs the motive for the trades.
How and Where to Track Insider Trading
It has always been thought that tracking inside trades was a good idea. With many executives obtaining the most current stock performance, one can quickly assume that they would be more than willing to make a significant purchase of their stock. Regardless of the decision made by an insider, an outsider should definitely take it into account for themselves.
Historical Facts Concerning Insider Trading
When inside trading jumps significantly it could forecast a major change in the way the market trades. But it is also important to be cautious while studying any positive news that may be generated about an inside trade. It is also imperative to take care of the way you make trades that are based on the signs that are present. Although a huge shift in trades may seem like a future shift, sometimes it doesn’t always work out to be at all.
Today, there has been an increase in companies having their executives obtain company stock. However, these types of procurements have no relevance towards outsiders. Although this may look great from the outside, trades like these are no reason to get excited.
Occasionally, the news is shared by insiders that they will make a huge purchase of shares in order to stir a craze. However, just because someone says it does not mean it is done. A great example of this is when Healtheon founder, Jim Clark, made it public of his intention to purchase millions of Healtheon shares. Shortly after, the share price skyrocketed. Unfortunately, the amount obtained was nowhere near the same amount as stated by him. This caused the share price to drop drastically, making investors who did the same take a huge loss when they purchased shares. Years later, Healtheon and WebMD joined forces and ultimately bought KKR & Co.
Just because the stock is bought by the executive based on assumptions, the selling of stock does not happen just because there is a fear of share prices dropping. There are many causes for a sell to occur. Maybe they decide to diversify their investment portfolio, take a much-needed vacation, pay a major expense, or provide more to the investor pool.
Additionally, when inside information is used, sometimes it can be misconstrued by the insider. An insider could also decide to obtain shares although the price has plummeted. Once estimation is accurately made, it could be seen as a fluke. In reality, an outsider is only able to speculate the number of shares that are being obtained.
4 Great Insider Suggestions an Investor Can Implement
As an investor, there are a few suggestions to take into account as you observe insider trading activity:
1. Not All Insiders Are the Same
When it comes to insider knowledge, the company directors do not have the same amount of knowledge as the CFO or CEO. The top executives will always have the most inside scoop concerning company stocks and the direction the company is moving.
2. A Significant Amount of Trades Occurring
Noticing a few insiders conducting trades should make you begin to question what is going on. If only one or two insiders are trading, it won’t be anything to worry about.
3. Small Businesses Have an Abundance of Insiders
If a business is small, then pretty much all staff will have the same amount of financial access because of it being shared openly. With a bigger corporation, it is mostly shared among the key players of the executive team.
4. Maintain Your Pursuit
A lot of proof exists that shows inside trading actually begins many years prior to the actual event or any notice being sent out. This is done so that it appears as if nothing illegal is happening as far as inside trading is concerned.