Tracking the Smart Money: Screening for Insider Activity

by Wayne A. Thorp

One popular indicator used to gauge a stock's potential is insider buying activity.

The logic is appealing—who else would better know the future prospects of the company and how this may impact future stock price movements? Insiders are privy to information regarding new products, competition, and operating environment, oftentimes long before the companies become large.

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On the other hand, studies have shown that insiders have been able to outperform the market on their buys, but not on their sells.

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