Use Insider Trading To Improve Returns
Last issue I promised to let you in on a secret. The secret to Insider Trading. If you didn’t see that article, follow this link to read all about it – Profit Legally From “Insider Trading”. Every day thousands of people are exposed to insider information.
Lawyers learn about new lawsuits. Accountants see financial information before it’s public. Salesmen know about big orders and new customers before management does.
All of this represents insider information.
I’d never advocate trading on insider information. Not only is it illegal, the consequences aren’t to be taken lightly. There is a legal way to profit from insider information though. By watching insider trading.
Learning when senior management is buying and selling stock can be very valuable. There can be hundreds of reasons why an Insider is selling stock (diversification, buying a home, kids in college). There is only one reason an insider would buy stock on the open market with cold hard cash. . .
Profits.
Any insider buying stock on the open market means one thing. . . they believe the stock is set to move higher. Remember, these managers spend all their time working at the company. They understand the business better than anyone else in the world.
So how do we find information on insider trading?
Believe it or not, it’s easy. Every company insider has to report any changes in their holdings. It can be a small sale or a big purchase. To do this, insiders file a Form 4 with the SEC.
Form 4 is simply a Statement of Changes in Beneficial Ownership of Securities. Take a look at one. It’s simple to read. It has the investor’s name and address. It also tells you what type of insider they are (director, officer, 10% owner). Then they list the security, if they were buying or selling, and how much they paid.
It’s a wealth of information.
It can be all found right on the SEC website. That site however contains hundreds and hundreds of filings. So I found an easier way. There are two data providers, Thompson and Reuters who follow this information. You can also find the insider trades from the Wall Street Journal.
Online, Yahoo Finance and MSN Money will list the top buyers. There’s lots of sources, just look around. Once you find something interesting head back to the SEC website and look at the Form 4 filings.
That’s how I found this interesting tidbit of information.
Come April 15, everyone knows the name of this company, H&R Block. They make a good deal of money helping people prepare their taxes. Just a few months ago, the stock was trading at over $26 a share. In the last month, it traded as low as $15.
One insider knew the stock was under valued.
Ever hear of Richard Breeden? Probably not. He’s a director at H&R Block (HRB). Last month he filed a Form 4 with the SEC. His investment fund Breeden Capital Management added 2.8 million more shares to their holdings. He paid an average of $17.50 a share.
All of these purchases were made in the month of October.
I don’t know about you, but that’s a big vote of confidence for the company. Anyone who puts down $50 million in a single month for a single company is making a big investment.
The investment’s already working out for Mr. Breeden. As I write this, the stocks up to $19.75 a share. That’s a 12.8% return in just a few short weeks. Not bad considering October was one of the worst months for the market in decades.
Following insider activity can be very profitable. Do your research, and pick your investments carefully. If you make the right moves, big profits are possible.
Category: Stocks
