Insider buying and selling......what does it tell us?

Insider Trading

Insider buying and selling is a very, very powerful tool in helping to determine whether a company is a good investment or not. Insiders are the executives, directors, and 10% owners of public companies. They know more about the health of the company than the average or everyday investor because they run it on a day to day basis. Studies have shown that companies that have significant insider buying have beaten the market time after time. This is no accident. Insider trading tends to lead the market by anywhere from six months to a year because of the knowledge that the executives have of their business model and how well the outlook is for the future. Insiders of a corporation obviously know more about the individual company they work for, the industry/sector that that company is in, and its competitors. This information not only helps them determine how the company is doing but also how much the company's stock should be valued at.

On the other hand, insider selling has not been shown to lead to a decline in the stock price because an insider may sell stock for myriad reasons: a child going to college, a new home purchase, or any life event.

Taking this into consideration, how is it that we can profit from this? Simple. Keep up with the news and look at investment vehicles in the market that take advantage of this information. Remember: every time and insider buys or sells, there is a process that they must follow and that involves following many SEC regulations that are eventually publicized so that each one of us can find out who is doing what. One way to capitalize is to keep your eyes open for headlines in the news that say a public company's executive is purchasing a block of shares or exercising options. This could be a sign that you need to look into the transaction to get more info. Another way to benefit is to invest in a company, or a group of them, that have insider buying. NFO is a managed ETF, an exchange-traded fund which is similar to a mutual fund, that holds companies whose high level executives and directors are buying company stock. There are also proprietary products that many of the brokerage houses, Smith Barney, Merrill, and Morgan Stanley, design to allow their clients to invest in these companies.

I would suggest 'googling' insider buying/selling and seeing if you can come up with a list of companies to look into.

Here is a preliminary list:
CABOT OIL & GAS CORP
MOSAIC CO
ST JOE CO
NUCOR CORP
COMCAST CORPORATION CLASS A
LABORATORY CORP OF AMERICA
MASSEY ENERGY CO.
OM GROUP INC.
ONEOK INC.
KAISER ALUMINUM

All it takes is a little research and turning over a couple of rocks to find the right company and the right time to invest.