Why Insider Buying Matters
Insiders have a significant information advantage. While they can't trade on material non-public information, they have deep knowledge of:
- The company's competitive position and market dynamics
- Upcoming product launches, contracts, or strategic initiatives
- The quality of management and operational execution
- Long-term growth prospects and industry trends
When insiders buy, they're putting their own money at risk based on this knowledge. Unlike selling (which happens for many non-investment reasons), buying is almost always a deliberate investment decision.
The Research Behind the Strategy
Academic research has consistently shown that stocks with significant insider buying tend to outperform:
Outperformance
Studies have found that stocks with heavy insider buying outperform the market by 5-10% over the following 12 months on average.
Cluster Effect
When multiple insiders buy around the same time, the signal is stronger. Cluster buying shows broader management confidence.
Size Matters
Larger purchases relative to the insider's existing holdings are more predictive. A meaningful increase in stake shows conviction.
Role Relevance
Purchases by CEOs, CFOs, and directors are more informative than those by lower-ranking officers.
Find Insider Buying Activity
Use Trabud's screener to filter for recent insider purchases. Find cluster buying patterns and significant transactions.
Open ScreenerWhat to Look For
Not all insider buying is equally meaningful. Here are the characteristics of high-signal insider purchases:
Open Market Purchases
Focus on transactions where insiders buy on the open market with their own money, not option exercises or stock grants.
Significant Dollar Amounts
Look for purchases of $100,000 or more. Small purchases may be token gestures rather than conviction trades.
Multiple Insiders Buying
Cluster buying—several insiders purchasing within a short timeframe—is a stronger signal than isolated trades.
Buying After Declines
Insiders who buy after their stock has dropped are often finding value. They're saying the market overreacted.
Important Caveats
- Insiders can be wrong. Even well-timed insider purchases don't guarantee the stock will go up. Use insider buying as one input among many.
- Context matters. A purchase right before earnings could be routine confidence, or it could precede bad news. Always research the full picture.
- Don't chase every purchase. Filter for meaningful transactions rather than reacting to every Form 4 filing.
- Combine with fundamental analysis. Insider buying is most powerful when combined with other positive factors: reasonable valuation, strong financials, positive industry trends.
Applying the Strategy with Trabud
Trabud makes it easy to find meaningful insider buying activity:
- AI Agent: Ask questions like "Show me large insider purchases this week" or "Which companies have multiple executives buying?"
- Screener: Filter by transaction type (purchases only), minimum value, insider role, and date range
- Dashboard: Monitor daily insider activity and spot emerging patterns