Whats the "real deal" about insider buys and sells?
The sells seem obvious. Time to cash out, stock peaking, they need some money or exercising options. The purchases seem a bit more of a mystery. Are upper-level executives "required" to buy shares from time to time? Or are shares "granted" to them as part of their pay plan and they are being "given" these shares? I follow a few local companies and it strikes me that they are buying because their companies are good, or great, values. Is it more significant if board members are buying? Is there a way to find out if an executive is buying puts or calls on their company? When is an insider purchase or sale not a sign of "anything" and when is it most significant. Are very very large purchases a possible sign of the executive trying show support for the stock when, in fact, the company is actually in big trouble? I'm seeing some fairly large purchases by some smaller bank stock insiders,sells on a few tech companies that have had a good run, huge buys in very small companies.
Answers
3127 points
EthanR answered 3 months ago …
Wow, quite a question, let me see how much of it I can tackle.
Buys are definitely more significant than sales. Often sales do not signify anything more than an insider needing some cash for something else in their life. Buys show that insiders have confidence in their company going forward. Obviously the more shares purchased, the more bullish one would feel.
Do not mistake timed or planned purchases or sales for anything more than they are- just regular investments or profit taking in the company. A 100 share purchase every quarter by the same insider does not impress me at all. On the other hand, when one or more insiders makes a large purchase for the first time in quite awhile, that is time to perk up and take notice. This is especially true if it is the CEO or CFO of the company. Who knows the future prospects better than they do?
I say it's time to sell a stock or short it when you see several insiders selling at the same time, and it's not planned sales or option executions. Or sometimes you will see the CEO or CFO selling shares slowly over the course of a month, so as not to depress the price or spook the market. That is clearly a negative as well.
I think an insider would have to be pretty dopey to make a really large purchase when the company is in trouble, as he stands to lose plenty of additional money that way. Why wouldn't he have just sold all his shares previously?
Yes, sometimes high level executives are granted shares by the company as bonuses or as part of their compensation package. I have never heard of anyone being required to purchase sales. Another possibility is when a new insider joins the company, they may start to acquire shares for the first time, sometimes in large amounts. Always check the company insider history to see if this is the case.
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