How strongly should one consider insider trading in a stock when considering investment?
Corporate executives whose compensation is partially in options have different reasons for buying or selling stocks that simple confidence or lack thereof in their company (taking a profit on older options, exercising them befoer they expire, or diversifying their investment portfolio). In this environment, how much weight should one give to insider trades?
Best Answer
307 points
CG answered one year ago …
I give it zero percent consideration.
As far as open market activity goes, the success record of insiders is abysmal. Actually it's a failure record. In bull markets they score big same as anyone and in bear markets the fail horribly. Maybe in cases they can afford to wait 10-20 years they come out ahead, by the good luck of a subsequent bull market, but most people can't wait that long nor should we hope for another big bull market any time soon.
Research the record of insiders, buy backs, and foreign investment funds during the current market slump to see what I mean. They were buying alll the way down, and that includes some "hall of fame" investors like Miller, Pzena, Whitman, and many others.
I've also seen it personally. Insiders get full of their own story line and can't accept when it's time to sell or that it's not yet time to buy. They have the vanity of intelligence and power or past good luck & success and mistake this for "can't lose" or think they can move the markets or simply that marketrts operate on logic or that somehow 30x p/e is suddenly a good fundemental due to some "new paradigm". All of it BS.
Answers
307 points
CG answered one year ago …
Addendum : Also try tracking any newsletter that base their recommendations on insider buying. In bull markets they do OK but no better than anyone else. In bull markets those letters disappear due to their constant string of bad calls ... again, based on insider buying.
Last thing, consider how brilliant these insiders are in light of legendary companies not having the sense to limit risk or leverage and going bust. Bear, Lehman, Merill, Enron, Fannie & Freddie, World Com, etc. etc. Insiders caused all that.
