Insider Trading

How do you know when a trend has started? Ended? This forum is for discussions about trend indicators and signals.
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demosthenes
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Insider Trading

Post by demosthenes » Thu Jan 06, 2005 9:55 pm

I'm trying out an insider trading service, basically the idea is to follow insiders because they know something we don't. Today they have reported a CEO purchase of 10K shares at HGSI:

http://www.form4oracle.com/company?cik= ... icker=hgsi

looks interesting, however it looks like the COO just sold 50K shares just a few days ago... seems like a bit of a contradiction...

shakyamuni
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Post by shakyamuni » Fri Jan 07, 2005 12:31 pm

"It is not well to be curious about all the reasons behind price movements. You risk the danger of clouding your mind with non-essentials. Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide. " - Jesse Livermore
Last edited by shakyamuni on Sat Jan 08, 2005 4:49 pm, edited 1 time in total.

demosthenes
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Post by demosthenes » Fri Jan 07, 2005 3:33 pm

Alternatively, you might like to conduct a serious research product on the relationship between insider trading and stock price movements to determine the value of this information.
I actually have (I'm new but I've done some homework) ;-). Here is a book by the chair of the finance department at the University of Michigan business school, which studies insider trades between 1975 and 1995. During the 20 years insiders were able significantly beat the market:

http://www.amazon.com/gp/product/produc ... 8&n=283155

For example, he claims that top executives in small firms (<$25M) buying shares in their own companies had 12.3% net return (i.e., 12.3% over the average market return) over the next 12 months. I think this sounds very impressive.
I may be wrong (which is often the case), as I am just speculating here and have done no tests myself, but my guess is that this information is of negative value when you include the cost of the information, the time spent reviewing it, and the opportunity cost of both.
I agree, the biggest challange that I find it to weed out all the noise information, but I do believe there are some interesting trades to be followed.

Another aspect of it that I'm noticing is the "news" factor. For example, take HGSI, which has started the discussion. The report came out yesterday, the stock is up over 5% today... and, of course, I didn't get in! :( ... Well I still don't like the fact that the CEO is new to the company and that the COO had sold 5 times the amount just two days before the purchase.

TC
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Post by TC » Sat Jan 08, 2005 12:59 pm

There can be many legitimate reasons, unrelated to the company's prospects, for insiders to sell.

However, when established executives add to existing positions, and especially if the stock has been in decline, this can often be a very bullish indicator.

BARLI
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Post by BARLI » Sun May 15, 2005 9:58 am

demosthenes wrote:I actually have (I'm new but I've done some homework) . Here is a book by the chair of the finance department at the University of Michigan business school, which studies insider trades between 1975 and 1995. During the 20 years insiders were able significantly beat the market
Well, if took for them 20 years to find such thing out why they're not as rich as George Soros, Paul Tudor Jones or othe rgreat traders and investors? just think of investing as a job, you'll find a niche someday, you just dont know exactly when, its just like any other job...

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