Richard, If you were to profile high growth stocks, you would see the best performing group(the ones with the largest percentage returns over a 12-24 months period)were not, were not, the companies represented by insider buying, but rather the ones who gave alot of options for sale to management and management were selling alot of stock.
However, if you were to profile stocks that as a group, had the largest percentage of winners vs losers(stocks that went UP rather than down after 12-24 month period)you would see that the insider buying group at the top of the profile list. Having said that, insiders are usually very early in their purchases(before the market sees what the insiders sees). These are not usually stocks that are good candidates for quick trades, these are usually beaten down stocks sometimes with an unknown future, and thats where the edge is. Management usually knows first when things are going "right". This is not a "guarantee" that you will buy a profitable stock, but rather increase the percentage of owning a winner. It will also reduce to near zero the possiblity of any surprises as we saw with S3. I think its a pretty safe bet that you would never see heavy insider buying over 12-18 months at higher prices and then out of the blue a major problem.
One last thing, when I talk of heavy insider buying, I'm not talking about a one time big buy, but rather steady buying over a long period of time(12-18 months) by many members of the management team as well as the board of directors with little or no insider selling over the same time frame. |
