If you want to know where the smart money is going, it can be helpful to watch the people who run the business. Insider buying can reveal when executives believe their own stock is too cheap to ignore.
When insiders buy a stock, they often have access to information, experience, or conviction that the average investor doesn’t.
For example, in early 2023, multiple insiders at Meta Platforms (META) bought shares after a sharp selloff. The stock nearly doubled within the next year.
In this article, we’ll break down everything you need to know about insider trading so you’ll know how you can use insider trading activity to find stocks that might be able to outperform.
Table of Contents:
- Why Insider Buying is a Powerful Signal
- What Is Insider Trading in the Stock Market?
- What Makes Someone an Insider?
- How Insider Trades Are Disclosed (SEC Filings Explained)
- How to Track Insider Trading Using TIKR
- What to Look for in Insider Trading Activity
- Red Flags and Limitations of Insider Tracking
Let’s dive in!
Why Insider Buying Is a Powerful Signal
When a CEO, CFO, or director spends personal money to buy shares in their company, they have access to more detailed information about the business than anyone else.
Studies have consistently shown that insider buying, especially cluster buying, where several insiders buy around the same time, tends to outperform the market on average.
These moves often appear after a period of poor stock performance, just before a turnaround or re-rating.
Insider buying during broad market selloffs is particularly telling. While others panic, insiders buying shares suggest that they see the decline as temporary and are confident about the business’s long-term future.
Not every insider buy leads to immediate gains, but it can help you spot companies that the management team actually believes in.
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What Is Insider Trading in the Stock Market?
Insider trading gets a bad rap, often because people associate it with illegal activity. But most insider trading is legal, and it can be a valuable signal for investors who know how to interpret it.
When these insiders buy or sell shares in their own company, they’re required to report the transaction to the Securities and Exchange Commission (SEC), usually through a Form 4 filing.
These filings are public. That means individual investors have a window into what the people closest to a business are doing with their own money.
What Makes Someone an Insider?
The people who count as an insider for a company include:
- Executives: The CEO, CFO, COO, or other top “C-Suite” leaders at a company.
- Board of Director members: Any Director who sits on the company’s board of directors. These are generally experienced business leaders who offer strategic guidance for companies.
- Big shareholders: Anyone who owns more than 10% of the company’s stock.
- Employees with inside info: People who have access to key non-public information. This is the least obvious to track, and won’t typically appear on most Insider Trading trackers.
These insiders are required to report when they buy or sell company stock, which is why investors often track their moves.
How Insider Trades Are Disclosed (SEC Filings Explained)
Every time a corporate insider buys or sells shares, they are required to file a Form 4 with the SEC within two business days of the transaction.
This filing provides detailed information about who made the trade, what type of transaction it was, how many shares were involved, and at what price.
Form 4 filings are part of the SEC’s EDGAR system and are publicly accessible. Reviewing the EDGAR system manually can be really tedious, which is why platforms like TIKR are helpful for investors.
TIKR aggregates a company’s recent insider trading all in one place, and quickly pulls the results from these Form 4 filings. This saves investors time while making it easy to find stocks that insiders are buying.
How to Track Insider Trading Using TIKR
TIKR makes it simple to monitor insider activity without digging through raw SEC filings.
The platform pulls Form 4 and other types of data into a clean dashboard where you can easily analyze insider transactions.
Start by searching for a company you’re interested in, and pull up TIKR’s Insider Transactions tab for the company.
As an example, for a popular work management software called Asana (ASAN), we can see that Dustin Moskovitz, who co-founded Facebook and is now the co-founder and CEO at Asana, has been buying more shares in the company.
These are big transactions. In the past month, he’s bought over 750,000 shares of Asana, which is over $10 million.
Additionally, you can see that Marc Boroditsky, who recently joined Asana’s Board of Directors, bought over $345,000 of the stock in April.
TIKR’s Insider Transactions feature helps you answer key questions like:
- Who is buying or selling, and how much are they trading?
- Are multiple insiders buying around the same time (known as cluster buying)?
- Is this a one-time trade, or has the insider been buying consistently?
This makes it easy to follow the people who are closest to the business and have the most information.
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What to Look for in Insider Trading Activity
It’s important to evaluate the context of an insider trade and the potential reasoning behind the trade.
Here’s what experienced investors look for:
- Insider Buying > Insider Selling: While selling can happen for many reasons, buying tends to reflect a direct belief in the company’s future. One or two open-market buys by senior executives can signal confidence. Consistent buying across multiple quarters is even more compelling.
- Insider Role: Was the trade made by the CEO, CFO, a director, or a 10% shareholder? Trades by senior management often carry more weight than directors or even large shareholders.
- Cluster Buying: When several insiders buy stock around the same time, it suggests shared conviction. This pattern carries more weight than a single executive acting alone.
- Date of Transaction: Time-sensitive insight matters. Buying after a dip or ahead of a known catalyst can signal something interesting.
- Number of Shares and Price Paid: Look at the size of the purchase relative to the insider’s historical activity and salary. Small buys can be symbolic. Large purchases, especially those that represent a significant portion of the insider’s annual salary or net worth, indicate stronger conviction.
- Track Record: Some insiders have a history of well-timed purchases. Reviewing past transactions can help you assess whether an executive tends to buy opportunistically or simply buys out of habit.
- No Dilution or Equity Raises: If insider buying is happening alongside equity dilution or frequent capital raises, it may not be as meaningful. Look for trades that align with shareholder-friendly behavior.
Several insiders buying at once, large purchases after bad news, or consistent buying over multiple quarters all hint that something good may be brewing under the surface.
Red Flags and Limitations of Insider Tracking
While insider trading data can be useful, it’s not a silver bullet to find stocks that magically outperform.
There are limitations that every investor should understand before using insider trading to make buy or sell decisions.
- Not All Insider Buying Leads to Gains: Some insiders simply have a poor track record. Just because a CEO is buying doesn’t mean the stock is headed higher.
- Insider Selling Isn’t Always Negative: Executives often sell shares for personal reasons like taxes, diversification, or estate planning. A sale doesn’t always mean they’ve lost confidence in the business.
- 10b5-1 Plans Can Create Noise: Many executives sell stock on a preset schedule through SEC Rule 10b5-1 plans. These automated sales are prearranged and don’t necessarily reflect a change in sentiment. Check the Form 4 notes to see if a sale was made under one of these plans.
- Equity Grants and Options: Not all insider trades involve actual capital at risk. Options exercises or restricted stock grants can inflate insider trading numbers but carry less weight than open-market purchases.
- Lack of Context Without Fundamentals: Insider data should always be viewed alongside financial performance, valuation, and competitive positioning. If the business is deteriorating, even aggressive insider buying may not save it.
Understanding these red flags helps you use insider data as one part of a broader investment thesis.
It’s helpful to pair insider trading data with tools like TIKR, which lets you check a company’s fundamentals, valuation multiples, and financial health metrics.
See how you can analyze stocks quicker with TIKR >>>
FAQ Section:
What is insider trading and how is it tracked?
Insider trading refers to stock purchases or sales made by a company’s officers, directors, or significant shareholders. These trades are tracked through Form 4 filings submitted to the SEC and are publicly accessible through tools like TIKR or the SEC EDGAR database.
How can I track insider buying activity?
You can track insider buying using platforms like TIKR, which aggregate real-time insider filings. TIKR lets you filter by role, transaction type, and buying trends to surface high-conviction moves.
Does insider buying mean a stock will go up?
Insider buying doesn’t always mean a stock will go up, but insider buying often signals confidence in the company’s future. When paired with strong fundamentals or low valuations, it can indicate a potential opportunity.
Where can I find Form 4 insider trading filings?
Form 4 filings can be found on the SEC’s EDGAR system, but platforms like TIKR present the data in a more user-friendly format with added filters, alerts, and historical context.
What should investors watch out for in insider trading data?
Some insider trading data doesn’t necessarily reflect that an insider is more bullish or bearish on a business. Automated selling plans, equity dilution, or small symbolic buys all count as insider trading, but they don’t necessarily mean that the insider is more or less bullish on the company’s future. Insider trading should be viewed in context alongside valuation, financial health, and the company’s overall trajectory.
TIKR Takeaway
Tracking insider activity gives you a unique view into what company leaders are doing with their own money.
When used thoughtfully, it can help you identify undervalued stocks, confirm a turnaround thesis, or spot early signs of internal confidence.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks, so if you’re looking to find the best stocks to buy for your portfolio, you’ll want to use TIKR!
TIKR offers institutional-quality research for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
