by John Jagerson, Analyst at
As I mentioned
in the last article,
insider trading information can be useful but it can also be
overstated or over-relied on. Used prudently, it may alert you to
increased risk in stocks you already own and could even be used to
find stocks and options to add to a watch-list as a potential
inve"stment. I suggest that insider trading information be used in
To see the video that accompanies this article,
1. Monitoring insider sentiment in stocks you own.
If insiders are suddenly buying a stock you own it may indicate
that there is some very positive sentiment inside the company. That
may change your risk control behavior by encouraging you to leave
the position uncovered or to add to the position within your
Before making a decision based on insider trading you should
consider who is buying and how much they are acquiring.
For example, if an officer like the CFO is buying that may be much
more relevant than a director. Similarly, if an officer or director
is buying very large quantities of stock that may be something that
The stock YHOO experienced significant insider buying by Carl Icahn
in his effort to increase his strategic influence on the company's
management in late November of 2008. The stock (
) then rallied after.
2. Using insider buying to find stocks for investment.
The filtering process to find stocks that you do not already own
with high insider buying is daunting if it could not be automated.
Fortunately there are both free and pay services that do an
excellent job at filtering and reporting the data for you. In the
video, I will cover three services that I recommend for this kind
Insider buying should not be the only qualification you use to
decide on a company to buy. It is merely an alert that something
interesting might be happening. Doing fundamental analysis and
making sure a potential investment conforms to your portfolio
diversification strategy is still critical.
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