New Insider Trading Dashboard

In the fallout of The Great Depression, The Securities Exchange Act of 1934 (SEA) was introduced to restore investor confidence in the stock market. One of the requirements of the SEA was the Form 4 Filing which requires every officer, director, or stakeholders with more than 10% equity in a company, to disclose any purchases and sales of their companies stock.

Today, Form 4 Filing is made available to investors via the EDGAR system on the Security and Exchange Commission’s (SEC) website. Investors often find that Form 4 Filings are valuable because major shareholders have unique insight into a company’s outlook. Professor of Finance at Michigan University, Nejat Seyhun, outlined in his book, Investment Intelligence from insider Trading, stocks that were being bought by company insiders outperformed the total market by 8.9% over the next 12 months. Other studies conducted on insider trading substantiate this with one study by Harvard Universities’ Leslie Jeng found that stocks with insider purchases beat the market by a margin of 11.2%.

Because of this, we created a new Insider Trading Dashboard which scrapes Form 4 Filings, aggregating the information into a simple user interface. Users can now view the largest recent changes across all companies, as well as search for the insider trading activity of specific companies. Below are some of the companies with the most recent insider purchasing/selling activity:

In this newsletter, we’ll outline important factors to consider when analyzing the data, and display some recent examples of insider trading using data from our dashboard.

Key Factors to Consider

Buying and selling transactions as a measure of company sentiment:

• Overall selling isn’t necessarily representative of negative company sentiment. Insiders may be selling shares for many reasons such as personal financial obligations. Because of this, selling activity is largely disregarded by stockholders. Renowned investor Peter Lynch once stated, “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” Despite this if company insiders are seen selling stock aggressively it may indicate a cause for concern that warrants more investigating. 

Transaction size relative to overall position:

• If a company insider purchased 40,000 shares, making his total position 540,000 shares (8% increase), this would be viewed as positive but not substantial by most investors. Conversely, if an insider bought just 10,000 shares of their companies stock, but resulted in a total position of 25,000 shares (67% increase), this would be seen as a very bullish sign by most investors.

The frequency and number of insiders purchasing the stock:

• Needless to say, the more insiders buying shares within a company, the better. While many investors view any insider purchases as positive, this only amplifies when multiple insiders are reported to be purchasing shares.

The Time horizon of insider purchases:

• One of the strongest attributes of Form 4 Filings is the disclosure time frame which requires insiders to disclose their position changes with 2 business days of the transaction, far less than the 45 Days hedge funds and congress members are required to file their positions and transactions respectively. The transactions reported in filings are less likely to reflect any price developments and are more actionable to investors. In addition to this the SEC’s ‘Short Swing Profit’ rule prohibits insiders from making a profit if a stock purchase and sale occur within a 6 month period. 

The Position of Transactor  

• Per SEC Guidelines, any insiders with material knowledge within a business, or ownership stake >10% must report transactions to the SEC. Despite this investors typically weigh transactions differently based on the position of the transactor. For instance a CEO would most likely have a better understanding of the future and internal developments within a business than a board member that partakes in annual meetings. We recommend considering the position of the transactor as a factor when reviewing insider transactions. 

Analyzing Recent Insider Transactions

Having established the fundamentals to read these filings, below we’ve pulled figures directly from the dataset and summarized some notable findings:

The graph above depicts the top 10 largest insider position increases in dollars over the past 30 days. It’s important to notice that the position change in dollars does not correlate with position change in percent. For example, an insider within (NYSE: PLTR) reported a $43.2m insider purchase, but this represented only a 7% increase overall:

This demonstrates the importance to consider the entire filing and not only the principal dollar amount. Below is a table with the largest individual purchases and sales, along with the transactor:

The table demonstrates the importance of checking the transactor behind a stock purchase or sale. For example General Electric sold $1.255 billion in Baker Hughes (BKR) stock. The sale of Baker Hughes was announced in June 2018 and this sale simply represents a portion of the sale of Baker Hughes. To the unassuming investor without knowledge of the planned transaction, this could be seen as a very bearish sign despite it being a routine sale. 

Conclusion

Insider transaction data can be used to uncover hidden treasures that have otherwise been overlooked by investors. While the data has some limitations and should always be considered along with your own thorough due diligence, it’s undoubtedly a worthwhile tool that can supplement your existing investing strategy.

Our Insider Trading Dashboard is now live and available on our website, along with our API.

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