What are insider trades?

Insider trades are stock market transactions by insiders of a company. This includes, for example, the management of a company. As these persons have insights into their own company that are denied to others, these transactions must be reported and thus made public within a very short period of time after the transaction has been executed, according to the US Securities and Exchange Commission (SEC). This is in the interests of equal rights and equal treatment for all investors.

Example

A pharmaceutical company develops a new type of drug and internal tests have proven its effectiveness in combating a disease beyond doubt. When the management learns of this, it is perfectly legal to acquire shares in the company, as the share price will rise sharply after the drug results are publicly announced. The management can now pocket substantial profits. However, this purchase must be reported to the SEC. These so-called insider transactions are recorded in the EDGAR database, which now contains well over 20 million entries and can be accessed publicly via the Internet.

Why are insider trades so relevant?

As mentioned above, these can indicate impending strong price movements. This can now also be used by outsiders to participate in these price gains.

Are insider trades really reliable?

There is never a 100% guarantee. My analysis has shown that the overall market has risen by 20%, but shares with insider trades selected by me have risen by over 50% in the same period. If you look at the price gains in the shorter term, the gains are even higher, because insider trades usually take place immediately before a decisive event and not months before. If insider trades become known, follow-up purchases by other investors usually take place within a very short period of time, causing the share price to rise further. Time can therefore be critical here, and we are not talking about weeks or months, but in extreme cases minutes!

Which companies are particularly interesting?

Insider trades naturally occur in all companies listed on the stock exchange. However, price fluctuations and thus profit opportunities are much more attractive with smaller and medium-sized companies than with mega-companies such as Apple, Microsoft or Shell. With such giants, even insider purchases only trigger small price gains, as the number of shares in circulation is naturally much greater. This fact is of course taken into account in our filters.

How can I take profit from this?

There are hundreds of insider trades or even more every day. There are providers who provide you with automated insider trades, but these are unfiltered and often incorrect. For example, purchases are often passed off as sales and vice versa, which is of course a serious mistake and can lead to expensive wrong decisions if you trade securities based on them. In addition, many dubious providers promise a 100% guarantee, which is of course impossible. The only certainty is that you are paying for a guarantee that cannot be fulfilled.

I analyze all insider trades by hand and only select those as so-called “relevant insider trades” that meet a whole series of filters and criteria. It may be that on certain days not a single insider trade fulfills these criteria and thus generates a reliable signal. Only such trades can form a basis for further investigation and a possible purchase of the share. This system was developed and fine-tuned by me over many months of observation and further refinement in order to achieve an optimal result.

So what do I get?

Every day you will receive a fresh selection of hand-picked insider trades, which I call “Relevant Insider Trades” (RIT). These all have the potential for extraordinary price gains.

Why are only purchases noted in the RITs?

I only recommend buying shares where you can achieve price gains by increasing the share price. Of course, you can also bet on falling prices by short selling, but this is not my philosophy, so I leave this to other platforms. My experience has also shown that selling is much more common and is nowhere near as reliable a predictor of share price performance as buying your own company shares.
A CEO will only buy his company shares if he hopes for profits and is certain that these will materialize. However, there are many other reasons for selling. It could be such a banal reason that the CEO wants to buy a new luxury car and sells some of his company shares to finance it.

However, an outsider might get the (false) impression that he is dumping the shares because he could soon issue a negative press release. Such speculation is dangerous and we therefore refrain from recommending insider trades that relate to sales. Experience has shown that in most cases this is the correct and effective approach.

Should I only buy shares on the basis of an insider trades?

No. Even if most of them actually yield amazing profits, further research is always necessary before buying a share to be really sure. In addition, every investor has different goals. Some buy for the long term, others for short-term gains. Some, for example, do not want tobacco companies such as British American Tobacco (BAT) for ethical reasons. And still others only want shares that pay dividends (or vice versa).
So if you are not sure about a share/company, it is better to wait for the next opportunity, which is usually not long in coming. Buying a share without conviction or even under time pressure is always a bad idea.

Important: Don’t let yourself be rushed, act calmly and thoughtfully! Insider trades help you to achieve your goals. Make clever use of this fact!

I am still skeptical, any examples?

Let’s just look at a few recent examples from 2019 to illustrate this.