Company insiders (officers, directors and owners of more than 10%) must report trades in their company's stock to the SEC on a Form 4, within two business days. Most of what they report is selling: stock pay vests, options get exercised, people diversify or pay taxes. Buying is rarer, and that's what makes it interesting.
Why buys matter more than sells
Insiders sell for many reasons: a house, a divorce, a tax bill. They buy on the open market for one: they think the stock is worth more than the price. It isn't proof, but it is someone with an inside view putting their own money down.
Telling signal from noise
- Open-market purchases only. Option exercises and grants are pay, not conviction. On a Form 4, an open-market purchase is transaction code
P. - Size relative to the person and the company. A CEO buying $2 million of a small company is different from a director buying $20,000 of a mega-cap.
- Clusters. Several insiders buying around the same time is stronger than one.
- Context. Buying after a big fall, near a 52-week low, says more than buying at an all-time high. Also check for a pre-arranged trading plan, which removes the timing signal.
- Leave out 10% owners. Large funds report as insiders too, and their trades are portfolio management, not inside knowledge.
What it doesn't tell you
Insiders can be early by years, or wrong. They know their company, not the market. Use a purchase as a reason to look, then do the work: the business, the balance sheet, the price.
See it in practice
This month's insider buying lists the significant purchases, filtered the way this article describes, and every stock page shows the company's insider buys for the last 12 months.
For education, not investment advice.