First and foremost, let’s define who these market “insiders” are given the context in which we’ll be discussing them today…
Technically speaking, “insider trading” is illegal when it is based on information that’s not offered to the public.
If someone were to act upon and financially benefit from such information, that is in fact illegal.
But that’s not what we’re talking about here…
The Real Insiders
The insiders we’ll discuss today are company insiders, such as CEOs, CFOs, COOs, marketing directors or board members.
These are folks who work for a publicly traded company that are required by law to disclose when they purchase or sell stock in the company they work for.
For example, when the CEO of a publicly traded company decides to invest their own funds by purchasing or selling shares of the company they’re employed by, they’re required by law to fill out what’s called a “Form-4.”
These forms are filed within the U.S. Securities and Exchange Commission (SEC) and are made public almost immediately.
What does it tell you about how an insider must think about their company if they’re willing to invest their own hard-earned money into buying shares?
Well, quite a lot actually…
Follow the Money
Perhaps they know something we don’t? There could very likely be something in the pipeline for the company that could cause the price of the stock to rise.
The benefit we as the public have is that we’re able to act upon this information freely!
On the other hand, the employee of the company who purchased stock must have a written plan for their intent of what they’re going to do with their holdings and must maintain the position for at least six months.
Let’s just say Elon Musk goes in and buys $1,000,000 of Tesla (TSLA) stock with his own cash… He’ll need to file a Form-4. And we, the public, have the opportunity to know about it.
The stock then proceeds to run up 30% in the next 60 days or so. We can gladly cash in on our gains, while Elon is required to continue to hold those shares for at least six months.
The Insider Effect
You see, we have the edge when it comes to leveraging company insiders, as we can follow their buys and cash out before they can.
So, whenever I’m analyzing a company I’m looking to buy, I look for insider buying.
I want to know the folks working there believe in the company they’re working for enough to put their own cash to work, just as I would be willing to as a retail investor.
When it comes to analyzing this strategy, there’s no one I know who’s better at following company insiders than my good friend and professional trader, Ross Givens.
Lucky for you all, Ross is hosting a live event today at 12 p.m. EST where you can learn all about his strategy and some of the amazing success he’s had following company insiders!
I hope you can make it! I’m certainly not going to miss this incredible event!
Rules to Live By
“You should never be surprised when someone treats you with respect, you should expect it.” Sarah Dessen
Until next time, I wish you a beautiful and blessed day!
Yours In Trading Success,
Anthony Speciale Jr.