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Insider buying, how important is it, how to track it


Libs
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This seems like a very useful tool, maybe even a starting point to the whole process.

 

I'd be grateful for any insights. Scrolling through Edgar seems like an inefficient way to do this, just wondering what makes more sense.

 

Here's an example of a fund that's done this well - INSAX. Beat the S + P by 6 points last year, and 4 points in 2012. They focus on clustered, large buys by senior execs only, with further screens regarding how well these execs have done with previous buys, etc.

 

Another angle is a reversal. Insiders sold earlier, but now are buying. That's a strong signal.

 

TIA for comments, including general thoughts on how people incorporate this issue into their analysis.

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yeah i read some paper that buying after insiders bought in the past would have yield you liek 12-14% or something over the last decade. Ill try to find it. I think noteworthy was that the outperformance was within one year almot always, after that there was no outperformance.

 

There was also no underperformance after insider selling I think.

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I've heard of those studies, it makes intuitive sense..

 

BTW, one of the 'reversal' cases is Green Mountain...(I'm told) insiders sold after Einhorn went after them, but then they went on a massive buying spree in the open window they had before the Coke deal was announced.

 

The stock zoomed two months later.

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Hey Libs -

 

I've used insider buying as an idea generating tool for a decade at least.  If you look at it every day you can quickly filter out the less meaningful buys and recognize the entities that are always accumulating a certain company.  There are many good sites for checking the daily filings nowadays but I still use one I started with years ago.  Also barrons lists the top buys of the week (for free) in their weekend magazine posted online.

 

http://www.insider-monitor.com/insider_stock_purchases.html

 

Also dataroma's home page has a nice insider purchase summary:

 

http://www.dataroma.com

(scroll down for significant insider purchases - you'll see Michael Larsen / Bill Gates has been adding daily to RSG this week for instance)

 

 

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The last time I looked at the literature on insider buys, as I remember there were three salient points:


  •  
  • The best results were  in companies that were value plays to begin with.
  • The best insiders to follow were the most knowledgeable insiders,  i.e. senior corporate executives.
  • Sales were not particularly predictive

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Seyhun studied trading by insiders and wrote a book about it in 2000. It is very fact and data based and focuses on which insiders in which situations provide good signals.

 

http://www.amazon.com/Investment-Intelligence-Insider-Trading-Seyhun/dp/0262692341

 

So basicly large 10% investors buying says very little. 0.7% outperformance. directors is like 3.6%. Officers 4% or something And top level executives 4.5% I think. This is all market caps, and all over one year. It kinda levels off in the second year.

 

But Market caps make a huge difference and the amount bought. If larger amounts are bought for example by high level executives in companies with market caps of 25 million $ and less (adjusted for inflation that is now over 30-35 million $ already) then the outperformance was a whopping 12%. So you could make close to 18%  if you buy and sell after one year after top level executives buy stock in their microcap companies. For huge market caps outperformance was very small.

 

This was all over pretty big samples. Seems to me that setting up a screener to warn you everytime a microcap CEO or CFO buys a decent amount of stock would be great. Even with directors you probably do more then 10% I think. Is probably a great way to generate idea's.

 

This is all from that book btw. Summarized it for you guys ;)

 

There is also underperformance after insiders sell, follows the same patterns as above. But less dramatic. Also usually the selling was followed by a outperformance of the stock the previous 1-2 years.

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Seyhun studied trading by insiders and wrote a book about it in 2000. It is very fact and data based and focuses on which insiders in which situations provide good signals.

 

http://www.amazon.com/Investment-Intelligence-Insider-Trading-Seyhun/dp/0262692341

 

So basicly large 10% investors buying says very little. 0.7% outperformance. directors is like 3.6%. Officers 4% or something And top level executives 4.5% I think. This is all market caps, and all over one year. It kinda levels off in the second year.

 

But Market caps make a huge difference and the amount bought. If larger amounts are bought for example by high level executives in companies with market caps of 25 million $ and less (adjusted for inflation that is now over 30-35 million $ already) then the outperformance was a whopping 12%. So you could make close to 18%  if you buy and sell after one year after top level executives buy stock in their microcap companies. For huge market caps outperformance was very small.

 

This was all over pretty big samples. Seems to me that setting up a screener to warn you everytime a microcap CEO or CFO buys a decent amount of stock would be great. Even with directors you probably do more then 10% I think. Is probably a great way to generate idea's.

 

This is all from that book btw. Summarized it for you guys ;)

 

There is also underperformance after insiders sell, follows the same patterns as above. But less dramatic. Also usually the selling was followed by a outperformance of the stock the previous 1-2 years.

 

 

Yada

 

This should do the screening trick ( may need to register):

 

http://www.gurufocus.com/InsiderBuy.php?capname=0

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thanks for posting. An interesting one that was written up last year is calamos. high level executive bought truck loads of shares in 2013 and 2014 so far. Market cap when written up was 200, and is now 250 million.

 

I think you might need to dig a little deeper on Calamos. The insider buying under "John Calamos, SR" is really the company

buying back shares under it's already announced buyback program. This fooled a lot of people, including me. I sold my shares

as the company performance is pretty awful (losing assets under management) - and the company is still run as a personal

piggy bank for the Calamos family. The insider buying had drawn me in originally - but it's an illusion.

 

It may turn around - but I find it interesting that a company that should be concerned about "stewardship of capital" for companies

it invests in - may not be run for the benefit of all of it's shareholders with it's current shareholder structure.

 

Here are a few old comments re: it's dual shareholder structure:

 

John Calamos Sr. founded his eponymous firm in 1977, serving as chairman and CEO as well as co-CIO. His nephew, Nick Calamos, serves as the other co-CIO and as a member of the board of directors. Although Calamos is now a publicly traded firm, it continues to resemble a private company in many respects. Much of this is because the Calamos family holds 97% of the firm's voting rights, leaving it with complete control over not only the operating and investment strategies employed by the firm, but also the makeup of the board of directors. Holders of the company's Class B shares, which have 10 times the voting rights of the firm's Class A shares and are held entirely by the Calamos family, have the right to appoint two of the six members of the company board. The family's dominant voting position also ensures that the remaining board members are to their liking. As with many family-controlled firms, we take issue with some of Calamos' related-party transactions, which include leases on aircraft and buildings used by the firm, catering services, and other dealings with businesses privately owned by the family.

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Im curious tho, why is no one doing this mechanical strategy? It looks really obvious, buy after very well informed insiders buy significant amounts. And backtesting revealed large outperformance over long periods. Also the outperformance was over a short period of time.  Why isn't this easy and obvious thing being exploited?

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Seyhun studied trading by insiders and wrote a book about it in 2000. It is very fact and data based and focuses on which insiders in which situations provide good signals.

 

http://www.amazon.com/Investment-Intelligence-Insider-Trading-Seyhun/dp/0262692341

 

So basicly large 10% investors buying says very little. 0.7% outperformance. directors is like 3.6%. Officers 4% or something And top level executives 4.5% I think. This is all market caps, and all over one year. It kinda levels off in the second year.

 

But Market caps make a huge difference and the amount bought. If larger amounts are bought for example by high level executives in companies with market caps of 25 million $ and less (adjusted for inflation that is now over 30-35 million $ already) then the outperformance was a whopping 12%. So you could make close to 18%  if you buy and sell after one year after top level executives buy stock in their microcap companies. For huge market caps outperformance was very small.

 

This was all over pretty big samples. Seems to me that setting up a screener to warn you everytime a microcap CEO or CFO buys a decent amount of stock would be great. Even with directors you probably do more then 10% I think. Is probably a great way to generate idea's.

 

This is all from that book btw. Summarized it for you guys ;)

 

There is also underperformance after insiders sell, follows the same patterns as above. But less dramatic. Also usually the selling was followed by a outperformance of the stock the previous 1-2 years.

What would be the most effective way to screen only small/microcaps?

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