UPDATED: April 2022
What Investors Can Learn from Insider Trading – It is no coincidence that corporate executives seem to always buy and sell at the right time. After all, the CEOs and CFOs of the world have access to every bit of company information you could ever want.
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What Investors Can Learn from Insider Trading
The fact that company executives have unique insights doesn’t mean that individual investors are always left in the dark. Insider trading data is out there for all who want to use it. In this article, we will discuss what insider trading is, how we can understand insider trading, and where to find the relevant data.
What Is Insider Trading?
Answering this question of What Is Insider Trading requires us to explain the two types of insider trading: legal and illegal. First, let’s talk about the illegal kind. Illegal insider trading is the buying or selling of a security by insiders who possess material that is still not made public. The act puts insiders in breach of their fiduciary duty. As you can imagine, illegal insider trading is a definite faux pas for anyone closely involved with a company.
Anybody with material, non-public information can commit the illegal act of insider trading. This means that nearly anybody, including brokers, family, friends, and employees, can be considered an insider. The following are examples of illegal insider trading:
- The CEO of a company sells a stock after discovering that the company will be losing a government contract next month.
- The CEO’s son sells the company stock after hearing from his dad that the company will be losing the government contract.
- A government official realizes that the company will lose the government contract, so the official sells the stock.
The Securities and Exchange Commission (SEC) is extremely strict with those who trade unfairly and, thereby, undermine investor confidence and the integrity of the financial markets. Don’t think that those who place the trades are the only guilty ones. If someone is caught “tipping” an outsider with material, non-public information, that tipster can also be found liable.
Insider Trading Isn’t Always Illegal
An important thing to emphasize here is that Insider Trading Isn’t Always Illegal. Insiders don’t always have their hands tied. Insiders can and do buy and sell stock in their own company legally all the time. Their trading is restricted and deemed illegal only at certain times and under certain conditions. The SEC considers company directors, officials, or any individual with a stake of 10% or more in the company to be corporate insiders.
Corporate insiders are required to report their insider transactions within two business days of the date the transaction occurred. The kind of information found in filings is extremely valuable to individual investors. For example, if insiders are buying shares in their own companies, they might know something normal investors don’t. The insider might buy because they see great potential, the possibility for merger or acquisition in the future, or simply because they think their stock is undervalued.
Insiders might sell their shares for several reasons, but they buy them for only one: they think that the price will rise. Insiders are prevented from buying and selling their company stock within a six-month period. Therefore, insiders buy stock when they feel the company will perform well over the long-term.
Conclusion of What Investors Can Learn from Insider Trading
Insider trading data is nothing new. Investors have been making investment decisions based on the actions of insiders for decades. While the data is important, just remember that large companies have hundreds of insiders, which means trying to determine a pattern can be difficult. So, do your due diligence of a company, but be aware of what insiders are doing, as they probably know more than the rest of the public.
About the Author & How YOU Can Profit: This article is the copyrighted product of the team at BuybackAnalytics.com .
Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept: Follow the trades of Insiders – CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don’t:
LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)
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