2007-09-20 14:12:24 · 3 answers · asked by Anonymous in Business & Finance ➔ Investing
You can learn from the stock transactions of a company's upper management.
It is generally accepted that "insider" selling is not very informative, since large amounts of stocks and stock options are either initially owned by company founders or distributed as compensation. If one of these wealthy management guys wants to buy a $2M vacation home, then he/she will commonly sell some stocks. This does not really mean anything other than the fact that he wishes to live richly.
If an "insider" buys a small amount of stock, less than $50K, that might not mean anything either. It could be a gift for a family member. If however, he buys $500K or more, then this expresses confidence in his company's stock performance. This is a good sign, and suggests that maybe you should be buying too.
How good is this signal? You would hope that this inside buyer has really good information on the company's financial performance. If he is some second level vice president, then he may or may not know much. If he is the CEO, then he should know a great deal. Some experts suggest that the best inside buyer signal is when the CFO buys a large amount of stock. No one know the finances better than the Chief Financial Officer.
What is the time frame? If the insider is skating close to the limits of the law, it is possible that he is trading on events that will occur within a couple of months. But there is no way to know his intentions. A safe guess is to plan on a 1 year to 5 year investment time frame. But even that is a guess.
2007-09-20 17:09:18 · answer #1 · answered by Tom H 4 · 0⤊ 0⤋
1
2016-12-25 02:13:55 · answer #2 · answered by Anonymous · 0⤊ 0⤋
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2016-10-05 02:30:37 · answer #3 · answered by ? 4 · 0⤊ 0⤋
please rephrase, insider trading is illegal.
2007-09-20 14:16:23 · answer #4 · answered by 27ysq 4 · 0⤊ 0⤋