ZACKS Weekend Wisdom
The #1 Signal in Insider Trading
By: Tracey Ryniec
February 07, 2015
We love it when a famous CEO buys a large chunk
of his company's stock.
In 2013, Elon Musk, the CEO of Tesla, bought over a million shares of Tesla stock for $100 million even though he already had plenty of shares. It made headlines.
But what about when non-famous insiders buy their companies' stock and when they buy en masse?
Usually no one pays any attention.
That would be a mistake.
When Elon Musk bought in 2013, he was the only insider at Tesla buying at that time. But at some companies, it's not just the CEO who is putting her money on the line, it is multiple insiders all jumping in at the same time.
This mass insider buying behavior is called a "cluster buy" and it is the strongest signal you can get in insider trading.
But you're not going to hear about the cluster buys from the media. There aren't going to be headlines trumpeting the buys of a few corporate Directors and a General Counsel.
Nope. The cluster buy simply isn't glamorous enough.
Investors therefore have to dig below the surface to find the insider cluster buys. But once you do, that's where big rewards can be found.
Cluster Buying Sends the Strongest Signal
Why do insiders spend so much of their money on their own companies' stock when they already own a ton shares already?
Greed!
Pure and simple.
The opportunity to make more money motivates people - even people who are already well off like highly paid CEOs and CFOs.
More . . .
