Who else knows better about a company than its own directors and executives? These insiders invest in stocks just like everyone else, but they have to file their trades with the regulatory agencies if they're investing in their own companies. Insider trades can be used as a way to find possible investments or to provide supporting evidence for a reason to buy a stock. The trades can be followed at the GuruFocus Insider Trade section of the website.
At GuruFocus, we mainly focus on buys when it comes to insider trades. Insiders sell stocks for many reasons. It may be to pay for their children’s tuition, buy a new house, or estate planning and so on. As Peter Lynch has said in his book, One Up On Wall Street, insiders only buy for one reason: They think the stock is going higher.Â
“There’s no better tip-off to probable success of a stock than that people in the company are putting their own money into it," Lynch wrote. "In general, corporate insiders are net sellers, and they normally sell 2.3 shares to every one share that they buy. After the 1,000-point drop from August to October, 1987, it was reassuring to discover that there were four shares bought for every share sold by insiders across the board.”
This phenomenon in insider trade activity was also seen during the financial crisis of 2008-2009. Just like in 1987, the ratio of insider buys-to-sells spiked to ratios of 5-to-1 and 4-to-1. The ratio spiked again during the last correction in 2011 when the United States’ debt lost its AAA rating. The ratio can be monitored through the “Insider Buy/Sell Ratio” chart on the Inside Trade page. Similar charts are also available for 11 different sectors by clicking on the “Trend” tab.
There are plenty of features available on the page to help filter through the data to find investment opportunities:
A new update to the site has been the reporting frequency of Canadian insider trades. Previously, the Canadian Insider Trades were updated on a weekly basis, but they are now available on a real-time basis. Securities regulations in Canada generally require corporate insiders of publicly listed companies to report the details of all their buys and sells of company securities within five days of a transaction. Insider reports are filed electronically into the national System of Electronic Disclosure by Insiders (SEDI). We are continuously scanning for these trades so that you can be alerted right away. E-mail alerts are also now available to help keep you updated. E-mails can be sent in timeframes ranging from instantly to daily.
There are also additional filters available to help navigate through the data. Insider trades can be filtered by individual stock, market cap, sector, and whether the stock is trading near 52-week, 3-year or 5-year low.
To further analyze the data, the All-In-One Screener can filter through the insider trades as well as a large number of fundamental characteristics. It is the most complete fundamental screener available on the internet.
Insider trades can also be a part of your research for individual stocks. A chart for insider trades can be seen on a stock’s summary page. Full data can be viewed through the insider tab. The data includes institutional trades, charts for number of trades and the volume of the trades, and complete list of the insider trades. The list of the trades also contains a link for the regulatory filing. Each insider in the list can be clicked on to reveal a list of their own insider trades.
The insider trades can also be a useful tool when analyzing distressed companies and trying to decide whether or not they can make it. As Peter Lynch has said, “When insiders are buying like crazy, you can be certain that, at a minimum, the company will not go bankrupt in the next six months. When insiders are buying, I’d bet there aren’t three companies in history that have gone bankrupt in the near term.”
To get started on researching insider trades, go to: Insider Trade.
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