Senior executives are greatly involved in the operations of the organization they work for. This gives them an edge in the form of precise information about the organization’s prospects. As any good investor would know, their strongest tool lies in this information from which they can gain actionable insights. Furthermore, executives involved in trading stocks also happen to have a solid background in business and financial analysis due to the experience they gain from being in their profession for so long.
However, this doesn’t mean that the outsider analyst is completely disadvantaged. You may have the skill but feel like you lack the information which leads to risk, but you don’t have to be totally in the dark. If you are looking to become a shareholder at any company, assess its leadership. Are managers so sure of the company’s future success that they are willing to put their own money on the line?
Remember, senior officials will never buy company stock if they believe that it will lose its value. The only reason they invest is that they expect the reverse. Keeping this in mind, the article focuses on the specific aspects of insider trading activities to focus on so you know you are making the smart choice.
Why Buy at All?
If you have been investing for a while, you may already know that people buy stocks because they wish to grow their wealth. This growth in wealth can be attributed to the rise in the value of a stock. The higher a stock’s price, the more it will sell for, and the greater the amount of cash the previous shareholder will receive. The promise of higher returns from selling stock is the primary appeal of trading.
This is the same principle that drives every investor regardless of whether they are insiders or outsiders. With the wealth of information at their fingertips, senior executives who invest in company stock will only do so for two reasons:
- The business will boom in the future.
- The organization’s stocks are undervalued.
Hence, when senior executives suddenly show interest in their company’s stock, it is because they believe that its price will rise.
Look to the Experts
Novice investors wanting to build their skills and become more adept at investing should enlist help from the experts. No one should get into investing blind. The purpose of expert help is to learn and add their investment tools to your arsenal which is why this article on NoBSIMReviews.com could prove immensely helpful. It provides a comprehensive evaluation of the famed investor, Andrew Keene’s project to help you earn between $1,000 and $5,000 every week, no matter how the markets are doing. Learning from someone with 11 years of experience backing him could provide an invaluable boost to your current skills.
Evaluate Company Personnel Trading Activities
It would be ridiculous to know what top company personnel thinks about their organization’s prospects by interviewing them all individually. Fortunately, assessing their stock trading activities is an equally good substitute.
But what parts of this stock trading activity should you pay more attention to? The following lists the factors that might help you understand whether a company’s stocks might be worth buying:
Identify the Personnel Traders
Don’t get excited so fast if you think that an insider’s trading activity could lead you to a gold mine. Slow down and assess first who the insider is and what their designation is. Personnel differs based on their personality, expertise, and job position so take that into account when you are examining their actions. Hence, take a look at their:
- Designation: While the average personnel in a company is more informed about their companies activities and prospects than an outsider, stick to analyzing the trading activities of the big shots. This includes the CEO, COO, CFO, and CIO who is often an organization’s most talented and practiced members. Corporate officers and the members of the board are also good candidates whose trading activities could be studied.
- Past Achievements: Different investors have different levels of skills when it comes to anticipation. This means some personnel can quickly recognize opportunities and act on them even when the market has caused the company’s stocks to become undervalued. Personnel who have a good track record with their investments are more likely to keep being successful in the future.
Know Their Level of Dedication
Confident personnel are willing to bet considerable amounts of money on stocks they feel sure about. This is why it is important to look at:
- Amount of money invested: With the wealth of information that the insiders are privy to, you would expect them to have a high level of confidence when investing and you could be right. This assurance might translate into using large amounts of money to buy stocks. Keep an eye on insiders who are engaging in these types of behavior.
However, minor purchases associated with retirement plans or involvement in employee stock purchase programs should not be considered as they do not point to optimistic buying behavior.
- Alterations in personal holdings: Even if the insider is not immensely wealthy, a slight expenditure on promising stocks could considerably raise their total holdings. Such changes indicate that the personnel is expecting that the company’s stocks will perform well in the future.
Discern How They Think
If a handful of personnel show signs of bullish behavior, it is a good reason to focus on the company and further investigate to come to a decision. However, if you find that a striking majority of personnel are investing, then you could be sure about following their lead. After all, there is power in numbers. Assess the general personnel view on their company by looking at:
- The number of insiders investing: Multiple personnel flocking towards their company’s stock is a good way to foretell a company’s prospects. A single insider may err but multiple insiders are less likely to make similar errors.
- The pattern of stock sold: Senior executives sell stock all the time because they are frequently being compensated with stock options and grants. However, if company personnel are being conservative with selling and hoarding over the years, this might be pointing towards their optimistic outlook.
Personnel trading information is an important source to refer to when making trading decisions. However, we must warn that you keep your eyes and ears open. Evaluate existing information related to the company’s stocks supplemented by executives’ course of action, and then make the final call.