An SEC Form 4 tells you exactly what a corporate insider did with their company's stock. The trick is that two Form 4s can look identical at a glance and mean opposite things. The difference is a single letter: the transaction code.
The transaction codes
If you only remember one thing: look for P. An open-market purchase is the insider spending cash at the going price. Grants (A) and exercises (M) are just compensation being collected and show up constantly.
Watch for 10b5-1 plans
Many insider sales happen under a 10b5-1 plan, a schedule set up in advance to sell a fixed amount on fixed dates. A Form 4 usually flags this. A sale under a 10b5-1 plan carries almost no signal, because the insider did not decide to sell based on anything happening now. Discretionary sales outside a plan are more interesting.
The size and the person matter
A $30,000 buy by a junior director is different from a $2 million buy by the CEO. Weight purchases by the people closest to the numbers, the CEO and CFO, and weight them by how big the buy is relative to their existing stake. Someone doubling their personal position is making a louder statement than someone nibbling.
Cluster buys are the strongest tell
One insider buying can be a one-off. Several insiders at the same company buying within the same few weeks is much harder to explain away. A cluster of open-market purchases by multiple officers and directors is the highest-quality version of this signal.
Insiders sell for many reasons and buy for one. They sell to pay taxes, buy houses, or diversify. They buy with their own cash for essentially a single reason: they think the stock is going up.
Putting it together
Open the Form 4, find the transaction code, and ask three questions. Is it a P? Is it big relative to what they already hold? Are other insiders doing the same thing? If the answer to all three is yes, you have found the version of insider buying actually worth your attention.
See insider buys as they post
ChartRead’s Insider Tracker watches SEC Form 4 open-market purchases by executives and directors, the real-money buys, with a one-tap chart read on each ticker.
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