Insiders are company employees that own their own companies stock. Insiders are usually the founders of the business along with all the CFO’s, executives, or any other big wig. Depending on who they are, they can often have millions of shares of stock in the company they work for or lead.
People like Bill Gates and Paul Allen at Microsoft have so many shares that they usually sell the same amount every month or two months or whatever schedule they decide on. That way the same number of shares are being sold throughout the year and it doesn’t look to investors like they are bailing out on the company or that anything unusual is happening.
Insiders are thought to have inside information and it makes a lot of sense to keep an eye on what they are doing. Many investors like to closely monitor insider buying and selling as they think it is a good indication of whether a company is doing well or poorly.
For instance, if you suddenly see an insider at Intel (or any company) buy a large amount of shares, it must be because they think the company is doing well and they think the stock price will be going up. Why else would they be buying, right? Conversely, if you find out that an insider at another company is suddenly selling shares in numbers that are uncharacteristic, perhaps that is an indication that things aren’t going too well at that company?
Company insiders often have so many shares of stock that they have a problem trying to get the most money they can for them. If they sell a lot of shares at once, they have enough shares to actually move the price of the stock. Additionally, selling large numbers of their stock could lead to a panic. That is why most of them sell reasonable amounts of stock at predetermined times.
Many stock market investors and analysts look for instances where sales or buys are made by insiders that are not on a regular schedule. This is especially true of insider buying because these people have key information that we don’t. If their inside information is so good that these company insiders want to buy more shares, that is often a strong indication that they think the stock is undervalued.
To learn more about stock insider buying and selling, I suggest you go to your bookstore and buy one of the Stock Market For Dummies books or any one of the other ones that covers the basics of stock investing.
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