The MarketBeat Insider Transactions Screener gives investors a one-stop resource to search for any insider trading activity by a public traded company for any quarter going back for over 20 years.
MarketBeat provides investors with an expansive, and growing, toolbox of research tools. This article focuses on the insider transactions screener and explains how investors can use this tool to refine and/or provide a shortcut for their research.
What is the MarketBeat Insider Transactions Screener?
The MarketBeat Insider Transactions Screener gives investors a one-stop resource to search for any insider trading activity by a public traded company for any quarter going back for over 20 years. The screener allows users to search for a specific stock by putting in its ticker symbol. For example to find results for Microsoft (NASDAQ:MSFT) you would enter the ticker symbol MSFT in the Ticker field.
The screener will provide investors with information such as:
- The date of the transaction
- The name and title of the insider
- The type of trading (i.e. buy or sell)
- The number of shares purchased and at what price
- The total transaction cost
- A link to an SEC filing associated with the trade (if applicable)
The screener also allows investors to search for past insider transactions by selecting a beginning and ending date. Investors can fine-tune their search even more by screening for a certain size trade (i.e. insider trades that involve more than 100 shares or trades that exceeded a certain dollar amount).
Insider Trading Isn’t Black and White
With all the information available to investors, insider trading activity would seem to be one of the easiest buy or sell indicators. When insiders are buying, you buy; when insiders are selling you sell. Simple, right?
Not really. It’s true that insider trading activity has the potential to significantly move the price of a stock. This is because corporate insiders (e.g. managers, directors) have access to information that is not publicly known. A little bit further down in this article, we’ll take a closer look at what illegal insider trading looks like.
But in many cases, insider trading should have little to no effect on a company’s stock price. I put emphasis on the words should have because there are times when insider trading affects the price of a stock in a big way. To understand how much emphasis to place on insider trading activity it’s important to understand why insider may buy or sell stock of their company.
Why Do Insiders Buy Stock of Their Own Company?
One of the most common reasons that insiders will buy shares of a company’s stock is because they are required to do so. It’s not uncommon for a company to require a newly appointed executive or director to buy shares of the company’s stock. In fact, the most common reason is to execute stock options.
While stock options can be a sensitive topic, the thinking behind this is that these insiders will be more inclined to make decisions that are in the best interest of all shareholders…because they own shares themselves. But by itself, this activity should not be seen as a buying signal for outside investors.
However, there are times when company insiders buy stocks because they believe that the company’s stock is undervalued in the market. And yes, this may be based on information that they believe will cause the stock to move higher. Whether this is insider trading will depend on several factors other than having access to information.
Why Do Insiders Sell Stock of Their Own Company?
So if company insiders frequently buy stocks because they believe the stock is undervalued, do they sell because they believe it’s overvalued? It’s certainly one reason that they may sell, but it’s not necessarily the most common reason.
Insiders are human beings and have lives just like every investor. Therefore, they may sell stock for a number of reasons such as:
- They want to diversify their portfolio (not having all their eggs in one basket).
- They want to make more shares available for other investors to buy.
- They need capital to finance a major life event (a trip, a wedding, etc.).
- They may need it to meet a legal obligation (e.g. a divorce).
When is Insider Trading Illegal?
When many investors hear the words insider trading they may immediately think of “illegal” insider trading. Names like Martha Stewart may come to mind. And it’s true that insider trading can be illegal. However for insider trading to be illegal, the insider must be trading on information that has not been released to the general public.
There are three conditions that have to be met for an act of insider trading to be illegal:
- Information must be passed along by an insider.
- The individual(s) receiving the information must act upon (traded) that information.
- The trading activity must take place before the tipped information is available to the general public.
That last point is essential to understanding insider trading. In many cases, the information used for a trade becomes public knowledge. The point is that if an individual were to find out something days or weeks before the general public, they could prepare a trade to maximize their own gain.
There is another factor to consider. The insider trading must be based on information that is certain to impact the shares of a stock. This might include learning about the passage of a bill through Congress or getting a heads up that a company’s drug or therapeutic passed a clinical trial phase.
The takeaway is this. If you work inside a company, you’ll have access to information that retail investors don’t have. But as every investor knows, sometimes an instinct is just an instinct. Insiders can get it wrong just as easily as retail investors. That doesn’t make it insider trading.
How to Make the Best Use of the MarketBeat Insider Transaction Screener?
So how can this tool be useful for your research? Here are four tips to consider:
Look at who is doing the buying or selling – In general, trading activity that is initiated by company executives such as the chief executive officer (CEO) or chief financial officer (CFO) is frequently more meaningful than activity initiated by company directors.
Look for patterns – One feature of the MarketBeat Insider Transaction Screener is the ability to let investors look at patterns over a period of time. That’s particularly important when it comes to insider trading. Many times these purchases are done at specific times of year. This frequently indicates that the trading is more a part of company policy than because the insider is acting on inside information.
Quantity of trading matters more than one big trade – Investors can have their stomach’s churn when they see a large dollar volume be sold off. However, one-off trading events don’t tend to mean much. What is more interesting is when several insiders buy or sell within a short timeframe.
Trading activity at small- and mid-sized companies may reveal more – That’s because when there are fewer layers between the executives and the data, it’s easier for them to see emerging bullish or bearish signs.
When in doubt, trust your plan – Although insider trading can sometimes offer investors a clear reason to buy or sell, many times it is just a data point. Many times if your gut tells you to not overreact, it’s a good idea to follow that advice.
The Final Word on the MarketBeat Insider Transaction Screener
Understanding when company insiders buy or sell a stock, it can be an indication of a larger price movement to come. However, it’s important for investors to remember that it’s just a single data point.
That’s because there are many reasons for insiders to buy or sell their stock. And, in many cases, those reasons should have no material impact on the stock.