Index insider: why you need to monitor the transactions of major shareholders

In the spring of major shareholders of American companies to massively get rid of their stock, arranging the massive sales since 2010. What this means to the stock market and why investors should keep an eye on this information?

Since the beginning of the year, corporate insiders (top-managers and majority shareholders) in the United States are actively selling shares of their own companies. According to research firm TrimTabs Investment Research, in March the volume of insider sales reached the highest level since 2010 — $10 billion In January and April, according to estimates from Thomson Reuters, American insiders sold far more shares than they bought. In these two months, the indicator sell-to-buy ratio (the ratio of sold shares to be acquired) has reached 60, indicating strengthening bearish (downward) trend on the stock exchanges.

Financiers have found such massive sales of the disturbing signal for the stock market. The portfolio Manager of Ranger Alternative Management brad Lamensdorf wrote that the insiders no longer see the value in their own companies. However, closer to may, the situation began to change: the amount of the purchase of the securities by the insiders once again exceeded sales.

Financiers surveyed by RBC, noted that insider sales do not always indicate the pessimism of top managers in relation to stock prices of their companies. Most such deals due to the fact that shareholders need the money, says the asset Manager UK “BKS” Nikita Yemelyans. I agree with him a managing partner at United Traders Anatoly Radchenko. “The market is very high, and now is the best opportunity for sales, since the stock demand there. The faster and stronger will grow the market, the more we will see sales of insiders,” he explains.

The trader does not consider a record amount of insider sales in the United States a negative signal to investors. According to him, the extent of these transactions are too small compared to the total turnover in the American market. However, for insider trading in specific companies that interest a private investor should be watching, convinced the financiers.

Impact on the quotes

According to respondents RBC experts, the information on transactions of insiders can affect the overall mood of the market. “Usually, in the first approximation, information on the acquisition of the shares of top managers is perceived positively, it is believed that they believe in their company. This supports the share price,” says portfolio Manager IR “Zerich capital Management” Alexey Trunev. If the insider sells stock is perceived by the market negatively and investors are beginning to closely monitor the company’s quotes, in preparation for the sales, he adds.

By using insider deals, top managers of corporations can also mitigate or exacerbate the effects of news background, when necessary, notes Radchenko from United Traders. “If, for example, the company produces a lack of accountability, but an insider when it buys the shares — it is perceived by the market as a good sign. Quotes for this can grow,” — says the financier.

An example of the positive impact of insider purchases on the stock price can be considered a Twitter, says Trunyaev. On 28 April, the company founder Jack Dorsey announced the purchase of the shares for $9.5 million After this paper began to grow, and on Monday, may 1, shares rose by 6% to USD 17.5 per share.

However, significantly affect the share price can only very large insider trading, warns Trunyaev. According to him, to provoke the movement of prices large corporations can only deal in tens or hundreds of millions of dollars, while in small companies these amounts will be less. At corporations with a market capitalization of less than $10 billion effect on sales or purchases of insiders is usually more visible, adds Radchenko from United Traders. This is because shares of such companies are less liquid transactions with them are rarer than securities of large corporations.

How to analyze deals

Reports on insider sales and purchases are published on the SEC website. These documents specify the details of an insider, the date of the sale or purchase of shares and the amount of the transaction. These data can be found on the websites-the aggregators of financial information, for example on Yahoo Finance. The card with the information about the Issuer, an investor may find the largest shareholders of the company and information about insider transactions. In addition to Yahoo Finance for insider trading following portals and In addition, information on recent major deals regularly published on the websites of Barron’s and The Wall Street Journal.

However, a potential investor in the first place is to get acquainted with the recommendations of independent analysts to determine if he is interested in shares of the growth potential, and only then to study the news, including insider trading, says Trunyaev. However, to overestimate this factor is not necessary, he said. According to Trustive, insider trading cannot serve as a sign to purchase or sell investor shares — rather, it is the recommendation of the guard.

Nikita Emelyanov calls from BCS insider stock sales a good time to buy interesting paper. “If the shares fall on the news that an insider has sold a package, as a rule, it is not related to the business of the company. Other things being equal it is a good time to buy,” he says.

Is it worth buying after insiders

Insider transaction on purchase of papers can be of interest to investors who are willing to invest for a long time, according to respondents RBC financiers. As noted by Nikita Emelyanov, this is because corporate insiders have a very long investment horizon — they can easily afford to buy shares in the calculation of the earn in three to five years. If a private investor is also configured long-term investment, he may copy the strategy of the insider.

Anatoly Radchenko from United Traders, in turn, recommends to follow the insider purchases within a period of corporate reporting and during large corporate events. According to him, such transactions are especially important when working with companies in the biotechnology sector. Their business depends on providing drugs approved by FDA (Food and Drug Association), and insider purchases have a positive effect on investors ‘ expectations that rely on the successful completion of the tests of Association are concluded by the trader.

However, to perceive the purchase of the top-managers of the stock as a clear positive signal should not be — they think not as frequent investors, adds Emelyanov. For example, if top managers and operating indicators for the year ahead forecast values does not necessarily affect the stock positively. Investors, unlike managers could lay in the share price with too optimistic expectations — then after the announcement of the financial results of the company’s securities may go down in value. “So in General public statements or actions of top managers is not very good benchmarks to predict the performance of the stocks of the company”, — concluded the financier.

Who is considered an insider

To insiders under American law are the members of the Board of Directors, top managers and shareholders who own more than 10% of the shares. They can trade shares of their companies, but, according to the law on securities and stock exchanges of 1934, each such transaction must report to the regulator. Adopted in 2002, the Sarbanes — Oxley act requires insiders to notify the SEC (the Commission on securities and stock exchanges of the USA) within two business days. To report the owners of securities through the EDGAR system (Electronic Data Gathering, Analysis, and Retrieval system). These documents are subsequently stored in the public domain.

Thus, the sale or purchase of shares by corporate insider is not against the law. Illegal, such transactions are considered only if they were concluded with the use of insider information, which is inaccessible to a wide range of investors, explains managing assets of IC “Zerich capital Management” Alexey Trunev. “If an insider knows about some important event in the company, he has no right to use this information to profit or avoid losses,” he says.