Insider trading tracker - SEC Form 4 Filings
Why track insider trades?
Previous studies found that insiders are mostly value investors: Insiders are found to be net buyers of relatively low P/E stocks and net sellers of relatively high P/E stocks; insiders tend to be contrarians, that is, they tend to sell more when market buys and buy more when market sells.
Insiders are required to submit their forms electronically through SEC Form 4 filings within two business days, allowing users to view insider transactions in real-time. GuruFocus insider data starts from January 2004.
Why are insider buys positive?
One of the greatest investors of all time, Peter Lynch, said that "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."
Not all insiders are created equal. One long-term study published a few years ago showed that top executives of companies beat the market by an average of 6% a year. Over 20 years that's the difference between turning $10,000 into $67,000 and turning it into $194,000. To focus on the top executives, GuruFocus created features like CEO Buys and CFO Buys, where Premium members can browse through the latest purchases of stocks by their own company CEOs and CFOs.
Is it even better if multiple officers and directors are buying their company stocks with their own funds?
Absolutely! One Citibank study found that multiple purchases by several execs within the past three months signaled big gains to come; as they later did, predictably, purchases at small companies with limited analyst coverage, and the biggest returns were found from insider buys of undervalued stocks.
GuruFocus Insider Cluster Buys, a Premium feature, allows you to browse the stocks that multiple company officers and directors have bought. You can browse by the number of buying activities and the number of unique insider buys during the past three months.
Check out: Insider Cluster Buys
Guru + Insider Double Buys
GuruFocus believes that by tracking the stock picks of value gurus, it “stands on the shoulders of giants.” Most of the gurus tracked are buy and hold value investors. They do extensive research before they buy a stock. They tend to hold a stock for a long time after they buy. Their purchases can provide users with a long term perspective of the companies’ business.
However, what if insiders are also buying shares? The Guru + Insider Double Buys screen allows users to view the most-bought guru stocks that company insiders are also buying. If we found stocks that our Gurus bought, and multiple company officers and directors are also buying, are they interesting?
They may not be 100% winners, but this pool of stocks is certainly a great place for you to begin your homework.
Check out: Guru + Insider Double Buys
Triple Buying Signals: Gurus and Insiders are Buying, and Companies are buying back shares!
How about adding another criterion, whether the company is also buying back shares? Now we have three great positive signals: Gurus buying, Insiders buying and companies are buying back. These three conditions are extremely strict, and only a very small number of stocks can pass this test.
GuruFocus developed a Triple Buying Screener for Premium Members to screen stocks based on these three signals.
Check out: Triple Buys
GuruFocus has found that insiders as a whole are not only smart sellers, but also insider buyers. The ratio of insider buys over insider sells can serve as a good indicator for market bottoms. The insider buy-sell trends can also be applied to the individual market sectors: As shown in the broad market, the ratios of aggregated buys to sells in different sectors show that this ratio can predict the returns in the sectors, too.
Check out: Insider Trends
Insider Trading FAQs
Who are insiders?
Insiders include board directors, the CEO, the chief financial officer, other “C-level” employees, and anyone who possesses inside information about the stock due to their relationship with the company and its key officers. Anyone who owns more than 10% of a company’s total shares outstanding is also an insider.
What is insider trading?
Insider trading involves trading in a company’s stock by someone who has material, non-public information about the said stock. Material, non-public information refers to information that has not been made public yet can significantly change the share price of the stock.
What are the 2 types of insider trading?
Insider trading comes in two types: legal insider trading and illegal insider trading. The legality of insider trading stems from the Securities and Exchange Commission’s mission to maintain a fair marketplace. Anyone with material nonpublic information could potentially make larger and unfair profits than fellow investors.
When is insider trading illegal?
Insider trading is illegal when anyone with material nonpublic information makes a trade using the said nonpublic information, or causes other people to act on said information. If someone learns about material nonpublic information from a friend and then profits using said information, both individuals can be prosecuted.
What is an example of insider trading?
A classic example of illegal insider trading involves Enron, an oil company from 2001. Although several executives were aware of the company’s financial troubles, the information was “skillfully” hidden in the company’s earnings releases. In April 2001, 29 of the company’s executives, who had inside knowledge of the company’s inevitable price decline, sold their shares just before the material news was made public. The scandal resulted in several executives receiving prison sentences and the passage of the Sarbanes-Oxley Act of 2002.
When is insider trading legal?
Insider trading is legal when company directors and C-level employees trade their company stock and reports the trades to the SEC timely, according to regulations like the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. Insiders are required to report their trades within two business days.
What is SEC Form 4 and how do you read Form 4 filings?
The Form 4 filing includes key sections like the insider name, company name, date of earliest transaction, relationship to company, and the list of transactions. Relationship to company allows the insider to check all applicable items, including director, 10% owner, and officer.
The list of transactions include transaction codes like P for purchase of securities and S for sale of securities. GuruFocus tracks only the open market purchases and sales of securities: Conversions of derivative securities or exercises of options are not included.
Who must file a Form 4?
Any insider who makes a change to their ownership stake in the company through an open market purchase or sale or through other means like exercising of options or converting of derivative securities must file a Form 4. The deadline for filing is two days. In case an insider fails to timely file a trade through Form 4, or for trades eligible for deferred reporting, the insider must report the trades through Form 5.
What is the difference between Form 3 and Form 4?
Form 3 is used when an individual becomes an insider in a company and must report his or her initial insider ownership stake. Form 4 is used when an individual changes his or her ownership stake, whether it is through open market purchase or sale or through other means like converting of options or derivative securities. The deadline for filing is 10 days for Form 3 and two days for Form 4.
Why do insiders sell stock?
Insiders may sometimes sell shares for reasons like to take profits from an initial public offering or keeping their ownership percentage below a certain amount.
Why do insiders buy stock?
One of the greatest investors of all time, Peter Lynch, said that "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise." Generally, insiders buy shares when they believe their company’s share price is expected to increase. However, insiders may also sometimes buy shares to boost investor enthusiasm or gain voting rights.
Why track insider buys?
Insiders usually know more about their companies than the general public does and thus, insider trades can give clues about where the share price may go in the future. One Citibank study found that multiple purchases by several execs within the past three months signaled big gains to come; as they later did, predictably, purchases at small companies with limited analyst coverage, and the biggest returns were found from insider buys of undervalued stocks.