I am pleased to introduce a new weekly service called Insider Weekends that highlights buying and selling of stock by company insiders. Numerous academic studies have found that insiders as a whole tend to outperform the general market. A 2007 study by Alan D. Jagolinzer, an assistant professor at the Stanford University Graduate School of Business, found that even insiders that were enrolled in “automated” 10b5-1 plans where they periodically sell certain amounts of stocks according to the plan, managed to beat the market by 6% over a six month period primarily through trades they could cancel under this plan. This study prompted the SEC to review and eventually revise the 10b5-1 plan rules in March 2009.
In a market that appears directionless and bounces from day to day, reviewing insider transactions for opportunities could turn up some gems in the rough. I have personally seen many small and micro cap companies that had strong insider buying near the March 2009 lows go on to become 10 baggers.