Lesson 2 of 5 · 3 min · Filings

Insider buying and selling: what it tells you

Executives must report their own trades within two days. The buys say more than the sells.

1. Insiders are a company’s officers, its directors and anyone who owns more than 10% of its shares. When they buy or sell the stock, they must report it to the SEC on a Form 4 within two business days.

2. Selling says little. Insiders sell to pay taxes, buy a house or spread their wealth. Many sales run on plans set up months ahead, and since April 2023 the form has a box to say so.

3. Buying is different. An insider who buys spends their own money, and there is mainly one reason to do that: they expect the price to rise.

4. The research agrees. Jeng, Metrick and Zeckhauser found that insider purchases beat the market by more than 6% a year, while insider sales did not. Lakonishok and Lee found the same: the signal is in the buying.

5. Not every trade counts the same. Cohen, Malloy and Pomorski set aside routine insiders, who trade in the same month every year. Their trades predicted nothing. Following the other insiders earned about 0.8% a month more than expected.

6. The strongest version: several insiders buying in the same weeks, with no plan behind it. Ryufin’s market page shows what insiders did over the last 90 days.