In his book, Investment Intelligence from Insider Trading, Nejat Seyhun, who just happens to be a leading researcher in the field of insider buying and selling, illustrated that when top executives bought large amounts of their company's stock, the stock outperformed the broad market by +8.9% over the next 12 months. And given that the long-term average annual return for the stock market has been +9.5% over the past 70 years, this means that stocks with heavy insider buying produce returns that are 93.7% higher than the market indices.
And then on the other hand, when an insider sold large amounts of his/her stock, Mr. Seyhun found that the stock under-performed the market by -5.4%, which is nearly 60% less than the market returns.
In addition, corporate insiders are often considered the "smart money" by Wall Street. For example, the research firm of Ned Davis Research reports that corporate insiders tend to be "relatively bullish at lows and relatively bearish at tops."
To test the effectiveness of these signals, one of the largest institutional research firms in the country conducted an historical test of how stocks with heavy insider buying signals performed over time, with small adjustments on a week-to-week basis. Here were the results:
In light of this information, we think it makes perfect sense to (1) invest in stocks where the corporate insiders are buying and (2) avoid any company where the insiders are selling.
Step 1: Finding out which stocks corporate insiders are buying heavily
The first step is to know which stocks corporate insiders are buying heavily. It's not well known information, which is why we've created the Insider Buying Report - to help the individual investor identify which stocks corporate insiders are buying heavily.
Every week our computers scour the available research on insider buying and selling and populate a short list of stocks with heavy insider buying signals. We then narrow the criteria in order to bring you a fresh list of stocks flashing heavy insider buying signals.
Below is this week's list of stocks that corporate insiders are buying heavily. This list is meant as a resource, and is not an investment recommendation tool.
The Insider Buying Report - September 15, 2015
|Company||Symbol||Industry||Insider Rating||Last Week|
|Violin Memory Inc||VNEM||Technology Hardware, Storage & Peripherals||Heavy Buying||Neutral|
|FelCor Lodging Trust Inc||FCH||Hotel & Resort REITs||Heavy Buying||Neutral|
|Aerohive Networks Inc||HIVE||Communications Equipment||Heavy Buying||Light Buying|
|ServisFirst Bancshares Inc||SFBS||Regional Banks||Heavy Buying||Light Buying|
|Federated Natl Holding Co||FNHC||Property & Casualty Insurance||Heavy Buying||Light Buying|
|Employers Holdings Inc||EIG||Property & Casualty Insurance||Heavy Buying||Light Buying|
|Coeur Mining Inc||CDE||Silver||Heavy Buying||Light Buying|
|Southside Bancshares Inc||SBSI||Regional Banks||Heavy Buying||Light Buying|
|Lattice Semiconductor Corp||LSCC||Semiconductors||Heavy Buying||Light Buying|
|Freds Inc||FRED||General Merchandise Stores||Heavy Buying||Heavy Buying|
Ownership Disclosure: At the time of publication Mr. Moenning and/or affiliated companies own positions in the following securities mentioned: None
Step 2: Narrowing the criteria - Which stocks do you choose?
Knowing which stocks corporate insiders are buying is valuable information. However, the real key to this information is knowing which stocks are most likely to give you an explosive return.
Over the years, we've learned a few key pieces of information that help us identify which stocks that flash heavy insider buying signals are actually going to go up. There is a specific set of criteria that these stocks must fit in order to be considered a great insider pick. We've honed in on exactly what we want in each of the following categories when making buying decisions:
These are the important criteria, but the secret is knowing what constituents fit the optimal set of criteria. Luckily, we know the recipe for success, and have developed a portfolio strategy using these perfect insider picks - The Insiders Portfolio. Best of all, the service is hosted right here on Marketfy!
Introducing: The Insiders Portfolio
We've been fine-tuning our investment strategy based on these heavy insider buying signals since December of 2008, and have the process down to a science. We know exactly what type of stocks to look for, what technical set-ups to select, how to evaluate and react to our open positions, and when to sell. Below are the annual returns for The Insiders Portfolio since we took the service live in 2008:
One of our favorite aspects about this strategy is that these stocks are potent. Just take a look at the following table, which highlights the Top 20 closed trades from The Insiders Portfolio.
While these big numbers are great, it takes more than just a handful of successful trades to manage an investment portfolio. Sustainable strategies are a must, which is why we have built in risk management strategies for the Insiders Portfolio for when the bears start to growl. We've also been managing client money at Dave's private money management firm, Heritage Capital Management, for years using this strategy.
Step 3: Transforming your investment portfolio with The Insiders Portfolio
If you're interested in giving the Insiders Portfolio a try, you can find check it out right here on Marketfy. If you have any questions about the service, or would like to request information, please don't hesitate to email us at firstname.lastname@example.org