One of the most important habits to have or acquire when tracking the insiders is to constantly be looking for patterns and groupings.
These two things often lead to profitable situations or can serve as hints of something bigger.
And this hint is definitely a warning…
Another important piece of advice regarding insider transactions is that the insiders almost always know more about their own companies than the Wall Street pundits.
The insiders may not know how the market is acting and how to react in return, but hey, often times those people who call themselves ‘stock market experts’ often have no idea either.
The point I’m trying to make is that we can at least be confident that the insiders have a certain level of knowledge regarding their own respective companies.
How to handle Insider Selling
As I’m sure you’ve heard me say before, insider buying should hold more weight than insider selling for our purposes.
Insiders can sell their stock because they need money for family matters, they want to reinvest it elsewhere, etc., but they only buy because they think the price of the stock will go up and they want to profit from it.
However, insider selling can be a great warning for us, especially when many of the ‘experts’ are seriously favoring a certain stock.
The important part of selling is being more strict. We need to see more specific evidence of insider knowledge forcing the sale than we would need to see for insider purchasing.
So how does this sound?
On October 14, Burlington Stores Inc. (BURL) experienced 5 instances of insider selling from 10% owners, directors, and the Executive Vice President.
And 4 of them sold the exact same number of shares at the same price!
The value of the sale exceeded $1 Billion, but I’m even more interested in the fact that these people clearly didn’t sell randomly on their own.
This situation reeks of selling based on privileged knowledge, and I am much more willing to trust that than what a bunch of outsiders on Wall Street say about BURL.
I’m going to follow the insiders’ lead for now, but that doesn’t mean we can’t change our minds if new information arises.
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