It happens all the time. Company insiders — officers, directors, employees, or shareholders with more than 10% ownership — buy and sell stocks in their own company.
It doesn’t necessarily mean that these folks with the greatest insights into the workings of a company view it as a sinking ship. They’re probably not bailing because they think the stock price is about to plummet.
Rather, it’s far more likely that it’s something far more mundane. They might simply be diversifying their wealth, or pulling out some funds to put a downpayment on a new home or send off a tuition payment.
When it comes to insider trading, we at The Motley Fool think that the most important question to ask isn’t, “How much did they sell and why?” but instead, “What percentage of their overall holdings did they sell?”
After all, if a founding CEO sells a couple hundred thousand shares, it might sound like a lot, but it could be a drop in the bucket.
Still, it can be a helpful part of your stock analysis to see if there are trends among the insiders. To find the numbers, you have to know where to look…
SEC Filings (Forms 3, 4, and 5)
The U.S. Securities and Exchange Commission (SEC) requires every company insider to submit these forms, so they are the most reliable source when it comes to a company insider’s holdings and any recent ownership changes.
- Form 3 is the initial filing — it indicates how many shares a given insider owns.
- Form 4 is used to report changes in ownership.
- Form 5 lists transactions that were not previously reported on a Form 4.
For more information on these forms, visit this SEC page.
Accessing a company’s insider trading history
The easiest way to find a company’s insider trading history is to go straight to the SEC’s EDGAR system — a giant online database of more than 20 million company filings. Just type in the company’s name, and then restrict your search to the insider trading reports by entering the number of the form you’re looking for (3, 4, or 5).
Another convenient place to look is the NASDAQ’s website. Visit the SEC Filings page, or this page if you’re just looking for Form 4. Sites like Yahoo! or Google Finance usually have some sort of SEC filings page, too. Most public companies also have their SEC filings available on their website — just look for a tab named something like “Investor Relations” or “Financials and Filings.”
Accessing an individual’s insider trading history
These search tools usually require you to enter the company’s name or ticker symbol, but it’s also possible to find the insider trading history of specific individuals.
Once again, the most easily accessible, authoritative source is the SEC’s EDGAR system. Even though it will prompt you to enter the company name in the search bar, you will just enter the individual’s name instead. (Note: last name goes first.)
Yet another good, trustworthy source to use is NASDAQ’s Ownership and Insiders Trades tool. Just click on the “Search Company Insiders” tab and enter the name of the insider you’re looking for.
And for a thorough analysis of all things insider, read Dan Caplinger’s informative article.
— Answer provided by Motley Fool intern Caroline Jennings