What is an insider?
A corporate insider is a director, senior officer or board member within a company, it can also be a person or another company who owns more than 10% of the company’s shares. Common for insiders is that they typically sit on material nonpublic knowledge about the company which will have an effect on the stock’s price, due to this fact all insiders must comply with strict disclosure requirements set by the SEC.
How can we track insiders?
All insiders are required to submit a report to the SEC within 2 days after the transaction occurred. This report contains all the details about the transaction such as amounts, who made the transaction and which shares. KINFO monitors transactions from 70 000 insiders and calorizes them based on type, role in their business and size in relation to their current position.
Categorizing for relevance
The first categorization is made based on the title where KINFO distinguish between the following type of roles
This consist if C-Level executive management where CEO & CFO are considered the most important roles to look at. This group has the most material nonpublic information and they would naturally have the best insight and ideas about the company’s direction.
This group consist of directors who has access to material nonpublic information but they are not part of C-Level management. This group is considered less important to look at than C-Level.
Others are often board members, other roles or companies who for some reason are considered insiders but are not C-Level executives or directors within the company.
This group consist of persons or entities who owns more than 10% of all shares but does not have a specified role.
So which of these roles are most important to follow? As a general rule C-Level Executives are most important to look at since they are having the most insight into the business and the overall outlook for the business. After that it´s dependent on factors as the title, size of transactions and frequency and the importance need to be looked at on a case by case basis.
KINFO makes it easy to overview transactions over time based on these 4 categories and provides you with a holistic view of the transactions that occurred for a particular stock.
Active vs Passive transactions
Most insider transaction that occur are not based on a active decision at the time of the transaction, most transactions are actually results of compensation plans or other similar activities that were already decided long before the time of the transaction, KINFO categorizes these as passive transactions. KINFO clearly distinguish between active and passive transactions and by default only active transactions are show since these are far more relevant to follow than passive transactions.
The size of the transaction can vary a lot between insider’s dependent on a number of factors that are not say much about how significant the transaction is for the person. A more comparable measurement is the size of the transaction in relation to their previous ownership.
To take a practical example, an institutional investor who is already a large shareholder may increase their position with a large amount relative to the transactions made by private individuals in the form of officers and directors. Furthermore, a CEO who doubles up or sells off all shares may not show up on a chart if only comparing transaction size.
KINFO shows transaction size in relation to previous position, by doing this KINFO can show a comparable change in position measurement, independent of size. This gives you as an investor a better holistic view of all significant insider transactions for a particular stock.
Why track insiders?
As the name states, insiders have access to information which you as an investor don´t, they would know about upcoming events, product launches, marketing activities and reporting information before it´s made public. Monitoring insider activity on a stock can provide valuable insight into the confidence in the company from people who have access to information before you.
How you as an investor benefit from tracking insiders?
By monitoring insider activity on stocks you currently own, monitoring sell signals could provide you with a valuable warning sign prior a decline. Furthermore, a significant increase by C-Level executives indicates that someone with access to non-public information strongly believes the price will go up.
How do you know which insider to look at?
KINFO tracks over 70 000 corporate insiders based on their filings to the SEC. Under each stock page you can view insider transactions over time divided into four categories. The size of the bubble shows the size of the transaction in relation to their previous position, this indicates how significant the transaction is for that particular person or entity.