Why do you think it is that a company CFO decides to all of a sudden buy stock in his or her own company seemingly out of nowhere?
Are they buying on a whim? Do they simply have no other place for their money? Do they want to show confidence?
No, they have privileged information that tells them the price of the stock will likely go up, and they want to profit. I think you and I should profit as well…
If you are a regular reader of this Insiders Exposed column, you already know that insiders on Wall Street only buy stock in their own company for one reason: they think the price of it will go up.
Their one and only goal is to make money, and they won’t buy for any other reason.
On the flip side, insiders may sell because they want to invest in something else, they need money to buy a house, etc.
But, again, we can’t expect an insider to purchase shares unless he has a reason to believe that the stock will be climbing in the near future.
So what makes an insider confident enough about his company’s stock rising to sink hundreds of thousands or even millions of dollars into it?
Privileged Information
Let’s say you’re a high-ranking officer in Company X. Company X has had small, consistent growth and its stock reflects that.
With all else equal, your company has just begun trials for a brand new product that could cure the common cold in one day.
As an officer of Company X, you have the ability to learn about the results of those trials before almost anyone else. And when you hear that the trials went very well, you have that privileged information before anyone in the public does.
Obviously this new product has a great chance of doing very well in the marketplace, and that would likely push the price of Company X’s stock up. So you invest in that stock right now so you will earn a nice profit when it rises.
That kind of insider trading is illegal, but it’s hard to catch people doing it. And it’s easy to see why an insider would be eager to do it, right?
Insiders are just looking to make money, but we can use that greed and insider knowledge to make money ourselves, even if we don’t find out what the privileged information is.
Thank you.