An Investor's Guide to Corporate Insider Trading Activity
One of the most important tools of fundamental security analysis is knowing how the insiders feel about their own shares.
Over time, insider purchases and sales have been fairly good predictors of future stock performance. Since insiders have access to crucial information not generally available to the public, it makes sense to monitor how they act toward their own shares. While not foolproof, studies have shown that insiders have fairly good results in buying and selling their own shares.
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Who Is an Insider?
An insider is defined by the Securities and Exchange Commission (SEC) as an officer or director of a public company or an individual or entity owning more than 10% of a company's stock. Take a look at the firm's annual report, 10K or proxy to identify the insiders.
Insiders are required to report their transactions in the company's shares to the SEC. These filings are usually done electronically via the SEC's EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system. And now, thanks to the 2002 passage of the Sarbanes-Oxley Act, relevant filings are much more timely. The most relevant SEC forms are Forms 3, 4, 5 and 144. They become public information and are available on the Web at www.sec.gov.
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