Use Insider Trading To Improve Returns
The Dynamic Wealth Report
November 3, 2008
The Secret To Insider Trading
by Brian T Mikes, Managing Editor
Last Issue I promised to let you in on a secret. The secret to Insider
Trading. If you didn’t see that article, follow this link to read all
about it –
Profit Legally From “Insider Trading”. Every day thousands of
people are exposed to insider information.
Lawyers learn about new lawsuits. Accountants see financial information
before it’s public. Salesmen know about big orders and new customers
before management does.
All of this represents insider information.
I’d never advocate trading on insider information. Not only is it
illegal, the consequences aren’t to be taken lightly. There is a legal
way to profit from insider information though. By watching insider
trading.
Learning when senior management is buying and selling stock can be very
valuable. There can be hundreds of reasons why an Insider is selling
stock (diversification, buying a home, kids in college). There is only
one reason an insider would buy stock on the open market with cold hard
cash . . . .
Profits.
Any insider buying stock on the open market means one thing . . . they
believe the stock is set to move higher. Remember, these managers
spend all their time working at the company. They understand the
business better than anyone else in the world.
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So how do we find information on insider trading?
Believe it or not, it’s easy. Every company insider has to report any
changes in their holdings. It can be a small sale or a big purchase. To
do this, insiders file a Form 4 with the SEC.
Form 4 is simply a Statement of Changes in Beneficial Ownership of
Securities. Take a look at one. It’s simple to read. It has the
investor’s name and address. It also tells you what type of insider they
are (director, officer, 10% owner). Then they list the security, if they
were buying or selling, and how much they paid.
It’s a wealth of information.
It can be all found right on the SEC website. That site however contains
hundreds and hundreds of filings. So I found an easier way. There are
two data providers, Thompson and Reuters who follow this information.
You can also find the insider trades from the Wall Street Journal.
Online, Yahoo Finance and MSN Money will list the top buyers. There’s
lots of sources, just look around. Once you find something interesting
head back to the SEC website and look at the Form 4 filings.
That’s how I found this interesting tidbit of information.
Come April 15, everyone knows the name of this company, H&R Block. They
make a good deal of money helping people prepare their taxes. Just a few
months ago, the stock was trading at over $26 a share. In the last
month, it traded as low as $15.
One insider knew the stock was under valued.
Ever hear of Richard Breeden? Probably not. He’s a director at
H&R Block
(HRB). Last month he filed a Form 4 with the SEC. His investment fund
Breeden Capital Management added 2.8 million more shares to their
holdings. He paid an average of $17.50 a share.
All of these purchases were made in the month of October.
I don’t know about you, but that’s a big vote of confidence for the
company. Anyone who puts down $50 million in a single month for a single
company is making a big investment.
The investment’s already working out for Mr. Breeden. As I write this,
the stocks up to $19.75 a share. That’s a 12.8% return in just a few
short weeks. Not bad considering October was one of the worst months for
the market in decades.
Following insider activity can be very profitable. Do your research, and
pick your investments carefully. If you make the right moves, big
profits are possible.
• Airlines Industry (Up 5%)
In the last 3 months, the Airline industry has been a top performer. It’s up 4.9% because of falling oil prices and decreasing capacity. The
move’s been lead by US Airways (LCC) and UAL
(UAUA).
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