Best buy stock
I. LOOK FOR INSIDER TRADING
Insiders of a corporation are the decision makers and strategy formulators . They are the directors, the officers and the high level line personnel. If anyone knows what is going on in a company, it is the managers who are directly involved in the upper level decision making process.
The basic idea of insider trading is simple : If a person has important information that will influence the price of a company s shares, the law is broken if that person uses the information for buying or selling stock. It is also illegal for anyone trading on the information even if they have no direct connection with the company. In other words, is a stockbroker observes a company selling stock and also makes a similar transaction, the broker is guilty of insider trading.
II. FAIR AND ORDERLY MARKET
Disallowing trades based on inside information is important . It is part of the fair and orderly market concept now being adhered to buy all the worlds stock exchanges. If such activities were allowed or ignored by the authorities, the public securities market would lack integrity, without which they could not function. Stock market prices are driven by anticipation based on information. Making trades based on privileged information ahead of the public, amounts of fraud. Individual investors need to have the same information as the professional investors in order for the public markets to be a level playing field for all.
III. INSIDERS MUST REPORT
At times corporate employees are privy to inside information and they want to legitimately buy and sell their companys stock. For various reasons, such information cannot be immediately released to the public. In fairness, the insiders are allowed to trade, but they must report transactions, holdings and other information. A sense of fairness is maintained because the public is able to view and assess such transactions.
IV. SIGNIFICANT TRADES
Those who follow insider transactions claim that buys are usually more significant than sells. Some people also argue that corporate insiders tend to avoid making transactions because they know the public is watching. Instead, they rely on their stock option benefit to supply them with company shares. Another side to this suggests that an insider or group of insiders could influence the share price by buying stock on the open market. These considerations are some of the reasons the value of watching insider transactions is often debated.
Two situations
Rise in Number of Insider Buys:
Some people view an increase in the number of insider buys as an additional reason to buy a stock. They believe that a sudden flurry of insider buys is a positive statement of growth potential for the company. It is important to keep in mind, however that sometimes companies lend money to their employees to buy stock, with the intention of having the public see the buys. Such corporate strategies suggest a manipulation of public interest; therefore it is important to view the presence of insider trades in relation to other information about a company.
Media Attention:
If the insider's trading has been significant enough to be discussed in the financial news media, it calls additional attention to the activity. The extra attention from the news appearance can affect the stocks price. However, the impact follows right on the heels of the announcement. If an investor plans to take action based on the news, he or she must do so quickly. Waiting even a day or two can be too late.
Part of the Picture
Obviously, an investor can follow insider trading as an investment strategy by itself. However, investment professionals recommend the use of additional analyses to form a conclusion before taking action. Corporate insiders can have any one of several reasons or motives for buying and selling their companys stock. Therefore, it is prudent to use information on insider trades as part of the picture of a company rather than as a sole indicator.
Sells vs. Buys
Unless there are several insiders selling the same stock, sells are generally not meaningful as an indicator. Insiders are often selling stocks to raise cash to purchase items other than the companys stock. A new car, boat, or a down payment on a lake cabin can be motivators for the insider. Also important is the strength of the individual sector or the entire stock market. If a market sell off is in progress, it would not be particularly meaningful to see company insiders selling stock also.
V. LOGICALLY, BUYS CAN HAVE MORE SIGNIFICANCE
Buys can have significance, although again, they should not be the only consideration for selecting a stock.
Results can vary when the activities of others are used as a forecasting tool. What works on one occasion might be a dismal failure on the next. All stock market analysis systems are capable of sending false signals. The investor needs to be aware of this and not rely too heavily on any one system of analysis.
Standard and Poors CompuStat, a market data provider, compiles numbers on insider stock activity. CompuStat tracks the buying and selling of shares by the top 10 individuals based on the number of shares bought or sold having an insider relationship with a company, using information gathered from securities and exchange documents.
Based on CompuStat data, looked for companies where the transaction values of insider purchases over the last 12 months exceeded those of insider sales in the same period by a ratio of at least 10 to 1. A ratio that high may be an indication of strong positive sentiment on the part of company insiders. The stocks had to pass one final test: Each had to carry a ranking of four stars or five stars from Standard and Poors equity analysts.
There is logic to buying being most meaningful in a bull market, where other stocks are also attractive. However, if the market is becoming volatile or trending down, any buying might well be a poor attempt at gleaning price support from other investors. Insider selling is pretty much meaningless or illegal, depending on the circumstances.
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