There has been extensive research examining the possible link between stock movements and insider trading. Does more information about their companies and events to come motivate corporate officers and executives to buy or sell their company stocks? Researchers have found several angles when it comes to the reasons why insiders buy or sell stocks. A stock seeing heavy insider buying doesn’t always mean it will go up sharply in the future. Sometimes insiders act as contrarian investors, reacting against the market’s overreaction to selloffs. If they believe their stock has come down sharply from its true intrinsic value, they may buy it. This angle of insider trading was highlighted in a research paper titled Aggregate Insider Trading: Contrarian Beliefs or Superior Information?
Why Do Insiders Buy/Sell Stocks?
Whatever the angle or motivation of insiders is, wise investors almost always pay attention to insider buying and selling. In November, the Insider Buy to Sell ratio spiked, showing that insiders were piling into stocks, expecting a turnaround or rally in the future. Covering this event, Bloomberg, quoting data from The Washington Service, said that as of November 27, almost 900 insiders had bought their own company shares. This was more than double the previous month. The report also quoted Mike Bailey, director of research at FBB Capital Partners, who said at the time that insiders were piling into stocks amid expectations of inflation decline and rate cuts.
“That is a double-barreled sign of optimism, with companies and individual executives buying back their stock,” Bailey said.
Insider Activity Heats Up in 2024
There was a strange calm in insider trading activity since the end of 2021 through most of 2023 when we examine major mega-cap technology stocks. But markets were rattled earlier this year when huge insider selling activity was noted at Amazon and Meta where Jeff Bezos and Mark Zuckerberg sold their company shares in droves. Many were quick to say that Amazon and Meta Platforms shares were about to dive. But long-term watchers of insider trading activity said at the time that massive insider selling activity doesn’t always point to a doom. Zuckerberg was selling Meta Platforms shares after a long break and some reports said he was selling Meta shares to fund philanthropy. Amazon founder Bezos was reportedly unloading shares to fund some major real estate purchases. Another reason behind heavy insider activity lately has been a lackluster growth in the IPO activity. Bloomberg said in a report that US is only pricing about $8 billion a month in IPOs, around half of what was typical in the pre-pandemic period.
Despite these possible reasons, research is clear: when top insiders buy or sell their company shares, on average, they make money.
Brian Blank from Mississippi State University and Dallin Alldredge from Florida International University earlier this year shared some interesting research examining the returns of millions of insider trades.
“We wanted to know if multinational insiders stand to make more money because of the complexity of the information they could possess relative to outsiders. So we examined returns from over 2.5 million trades reported to the SEC from 1987 to 2019 by insiders at over 10,000 companies. This is only a subset of all insider trades reported during the period because we focused on only those transactions most likely to be informed by the employee’s insight. We then compared monthly returns for insiders at multinational and domestic companies with those for a typical investor. We found that all insiders beat the market, but those at multinationals did better – especially if they were on the highest rungs of the corporate ladder. While insiders at domestic companies typically obtained a return of 2.4% in the month following a stock purchase, those at multinational corporations reaped 2.8%. That may not sound like a lot, but, assuming consistent returns, it could amount to earning $170,000 more if an insider traded $1 million over several months. And it’s triple the typical stock market monthly gain of 0.9%.”
Latest Insider Sentiment and Performance
As of April 24, Insider Buy to Sell Ratio stands at 0.27, which is quite low when compared to historical values and median value of 0.34. That means insider sentiment is currently weak and insiders are not piling into the market. So far in 2024, AdvisorShares Insider Advantage ETF (SURE), which invests in companies “reducing their equity float through buyback programs and insider buying,” is up 7.4%, compared to the 6.9% gain posted by the S&P 500 in the same period. Over the past one year the ETF is up 23%.
Latest Insider Trading Activity: Stocks Executives and Directors are Buying
For this article we used Insider Monkey's insider trading stock screener to find stocks that saw significant insider buying activity from executives, officers and board directors over the past couple of weeks. From these stocks we chose 11 companies with the highest amount of insider purchases in terms of dollar value. Why do we pay attention to insider trading activity? Insider Monkey’s monthly newsletter and portfolio that focuses on activist hedge funds, insider trading and stock picks from hedge fund investor newsletters and conferences. The portfolio returned 199.2% between March 2017 and March 12, 2024 and outperformed the S&P 500 ETFs’ 144.9% gain by more than 54 percentage points.
Ashford Inc (NYSE:AINC) is a REIT focused on the hospitality industry. The stock ranks 11th in our list of the top insider buys this year. Ashford Inc's (NYSE:AINC) CEO Monty J Bennett on April 15 amassed 200,000 shares of Ashford Inc (NYSE:AINC) at $4.91 each. The total value of this transaction was about $982,000. Since April 15 Ashford shares are down about 1.84%.
Of the 933 funds tracked by Insider Monkey, seven hedge funds reported owning stakes in Ashford Inc (NYSE:AINC). The biggest stake in Ashford Inc (NYSE:AINC) is owned by Renaissance Technologies of Jim Simons which had 52,153 shares of Ashford Inc (NYSE:AINC).
PetVivo Holdings, Inc. (NASDAQ:PETV) makes medical devices and treatments for animals. PetVivo Holdings, Inc.'s (NASDAQ:PETV) CEO John Lai on April 15 piled into 150,000 shares of PetVivo Holdings, Inc. (NASDAQ:PETV) at $0.60 per share.
The stock is down about 0.9% since this transaction.
US Gold Corp (NASDAQ:USAU) ranks ninth in our list of the top insider buys this year. On April 15, Luke Anthony Norman, a director at US Gold Corp (NASDAQ:USAU), piled into 5,000 shares of US Gold Corp (NASDAQ:USAU) at $4.19 per share. Since then through April 17 market close the stock price is up 4.5%.
BRT Apartments Corp (NYSE:BRT) is one of the stocks with heavy insider buying recently. BRT's SVP Matthew J. Gould on April 15 piled into 36,912 shares of BRT Apartments Corp (NYSE:BRT) at $16.94 per share. Since then the stock is up 5%. BRT's CEO Jeffrey Gould also bought 36,912 shares of BRT Apartments Corp (NYSE:BRT) at the same price on April 15.
Utility company York Water Co (NASDAQ:YORW) is one of the stocks with top insider buys recently as on April 16, York Water Co's (NASDAQ:YORW) CEO Joseph Thomas Hand bought 284 shares of York Water Co (NASDAQ:YORW) at $34.81 per share. The net worth of this transaction was $9,871. Since this transaction the stock price is up 1.41%.
Vuzix Corp (NASDAQ:VUZI) makes wearable AR and VR devices, computer display devices and related software for defense, security and enterprise clients. The stock saw significant insider buying activity this month. On April 22, Timothy Heydenreich Harned, a director at the company's board, loaded up on 20,000 shares of Vuzix Corp (NASDAQ:VUZI) at $1.31 per share. The total worth of this transaction was $26,188. On the same day, Vuzix's President and CEO Paul J. Travers snapped up 14,500Vuzix Corp (NASDAQ:VUZI) shares at $1.25 per share. He had also bought 7,500 shares of the company on April 18 at $1.34 apiece. Since then the stock is up 4% through April 24.
