Talking With Their Wallets...
(segment of an article relating to insider buying)
By Jack Hough
April 11, 2003
In This Story
The Rationale
Think of a company's insiders as your professional tasters. When these corporate officers — or other beneficial owners with more than a 10% stake — start nibbling on their own shares, it's a good sign that it's safe for you to take a bite.
After all, insiders have a special perspective on day-to-day operations, and often know more about their businesses than anyone else. That's why savvy investors pay plenty of attention to their purchases.
Insiders sell shares just as often, though that's not as good of an indication of their views. That's because company officers often receive stock or options as part of their compensation, and routinely sell shares to finance big expenditures like a house or a kid's college tuition.
When insiders buy stock, though, they spend their own money. That endorsement speaks louder than press releases and projections coming from the boardroom. And, fortunately, investors can track purchases easily, since the SEC requires that insiders report trades within two business days.