How Insider Activity Impacts Share Prices
The Securities and Exchange Commission (SEC) has a requirement that corporate insiders, a company’s officers, and directors, who own more than 10% of a company’s equity security have to tell the SEC of all purchases and sales. This is very helpful information that is publicly available and lets everyone know what those within the company are doing. So, here is a quick outline with a few quick tips on how to use this information.
Selling shares happens for a number of reasons
The general rule is that the selling of shares happens for a number of reasons. These could be taking some capital for personal needs, estate planning, charitable donations, or other reasons. As selling shares can be done for so many reasons analysts focus on those buying, not selling. However, three or more insiders selling can be a signal that sentiment is dropping for the company.
Buying is seen as more significant
When buying happens in clusters of three or more this tells you that officers may be bullish on the company’s prospects. An executive doubling his commitment or taking on a large position with personal funds shows a strong signal of insider sentiment.
To find SEC information on insider buying, you can go to the SEC’s website and use the EDGAR search tool to look up filings for the company you are interested in. Once you have found the company’s filings, you can search for Forms 3, 4, and 5, which disclose information about insider transactions, including purchases of company stock.
You can also use third-party websites such as InsiderMonkey, InsiderTracking, or MarketBeat to track insider buying activity. These sites provide tools and alerts to help you monitor insider trading activity, including buying and selling activity by company insiders.
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