No One Ever Told Us That: Money and Life Lessons for Young Adults

CHAPTER TWENTY-EIGHT

INSIDER TRADING

There are several exercises I used and have used for a long time to help guide my investment decisions. One of them involves legal insider trading, not the kind that can send you to jail, like Martha Stewart, but the kind that has made me money legally over the years, and can do the same for you.

Every week in various media outlets, and on many Internet sites, lists are published, mandated by the Securities and Exchange Commission, of all the buying and selling by corporate insiders, officers, and directors of their company shares. The transactions cover number of shares and price range. And dollar amount. These corporate insiders must get legal prior approval to buy or sell these shares. Then they have to register these intents with the appropriate regulatory agencies. Once approval has been obtained, these insiders are given a narrow window, usually a few days, to execute these orders. Then, within days, the trades are published as public information, and general investors may use this knowledge (or not) to do their own trading.

This is an old technique for money managers, not unique. But, in my view, it's a technique generally unknown to the investing public. Here's how I use a strategy in relation to public insider transactions.

You might think that selling activity by insiders means that you should dump shares in the company. Not necessarily. Often, retirement and estate planning dictate insider selling. Lawyers and so-called financial ...