It nearly always pays to follow the insider buying habits of company officers and directors. Research has shown that whenever you have insider buying, the stock tends to outperform the total market by 8.9% over the next 12 months. And so far in 2014,
- Stocks to Watch: Where Insiders Are Moving Their Money Now
- These Insider Stocks to Buy Now Are Tomorrow's Big Gainers
- Are Insiders Signaling These Companies are Stocks to Sell?
Recently Money Morning Chief Strategist Keith Fitz-Gerald pointed out that insider selling has been soaring of late. He pointed out that according to Vickers Weekly Insider Report the ratio of insider selling to buying by officers and directors stood at better than 9 to 1.
This is a level that has been predictive of near-term tops in the stock market and individual investors need to be on alert for potentially falling stock prices ahead. While this indicator is not a precise timing measurement it is a red flag telling us that the people running publicly traded companies have concerns about valuation and prospects as we head deeper into 2013.
Insiders can tell us something about the potential performance of individual companies as well.
As far back as the mid-1960s Victor Niederhoffer and Jim Lorie combined on studies that showed insider cluster selling was predictive and indicative of lower prices over the next 12 months. Professor Nejat Seyhun of the University of Michigan has also done extensive research and concluded that when insiders sell in clusters it is likely that lower prices are ahead.
Given that insiders in the aggregate are warning of a market decline it is useful to take a look at which stocks are also showing warnings of lower prices ahead.