Insider Trades Misconceptions & Focal Points 🧵

There appears to be a small army of Insider Trade Analysts and trend followers, but most miss the obvious context.

The crucial issues are not trades but the trading pattern and the trade rational.

Some Thoughts

1. Management Executives + Board Members ("Execs") have pre-set trading windows, so programmed buys and sells occur within those windows. Timing of trades may therefore be relevant or irrelevant.

2. Execs like everyone else wealth plan. Their trades are frequently that.

3. Divorces and life events trigger sales. Promotions and inheritances can trigger a buy.

4. Buys are often related to minimum equity exposure requirements per employment agreements.

5. Buys and sells often triggered by tax planning.

Some Considerations Worth Investigating

1. Are Execs getting divorced?

2. Do Execs tend to net exposure out annually so buys and sells effectively maintain an exposure level within a threshold?

3. Do some Execs buying and selling proceed M&A or major policy changes and if so by what lead time.

4. The trades of Key Man Execs are more critical than lesser hires.

Critical Events

1.     Are Execs all selling or buying.

2.     Are the Execs mostly buying or selling or is there no obvious pattern?

3.     Trade pattern changes i.e., why Execs are buying or selling but contra to their typical behavior.

Conclusion

Blindly assuming an Insider Trade is a significant event even if of size, provides little insight unless the driver(s) of the trade is analysed. Trading patterns of Execs as a group will yield more insight than merely focusing on recent insider trades.

Look for variance from the expected trade direction. Frequently, a trade contra to the expected trade outcome is a signal worth investigating.