Insider Trades (Form 4)

Officers, directors and anyone owning more than 10% of a company's shares. When they trade its stock they must file a Form 4 with the SEC within two business days, stating what they did, how many shares and at what price.

Many filings record stock or option awards, option exercises, shares withheld to pay tax, or gifts. Those say little about what the insider thinks. The informative ones are open-market purchases (transaction code P) and sales (code S): an insider spending or raising their own money at the market price.

Insiders sell for many reasons unrelated to the outlook: taxes, a house, spreading out a fortune concentrated in one stock, or a pre-arranged trading plan (a Rule 10b5-1 plan, set up in advance and selling on a schedule). They buy with their own money for essentially one reason. Research over several decades has generally found purchases more informative than sales, especially when several insiders buy around the same time, and in smaller companies.

The effect researchers found is an average over thousands of trades, and a modest one; any single insider purchase can be early, wrong, or a show of confidence aimed at the market. The Form 4 can also arrive two business days after the trade, after the price has moved. Treat insider buying as a reason to look closer, not a signal to follow.

The Insiders panel on each stock page shows the past 12 months of open-market buys and sales, read from the Form 4s themselves: totals, how many insiders bought, how many sales ran under a trading plan, and the latest trades, each linked to its filing at the SEC. Awards and option exercises are left out. The first time anyone opens a company, its filings are read from the SEC, so the panel can take a moment to fill in.