Monday, July 12, 1999

Psst! Insider Information

by RehobothFool

One of the stock indicators I enjoy looking at is "insider buying," and it was a happy day when Yahoo! added it to its menu. I also found a great online site that specialized in insider buys, because as we all know so well, it doesn't mean much when insiders sell stock but if they are willing to put up their own money and buy at market prices -- not pennies on the dollar option prices -- that says a lot.

I was very jazzed on this concept and even bought stock that I saw was being bought heavily by insiders, including by my favorite CNBC commentator James Cramer (and his wife too). Yesterday, I had some time and revisited the site, which nicely keeps its records of insider buy lists as far back as last May (a long time in Internet years). I wrote down 11 stocks listed back then with their then-prices. Then I went back to to see how much money those insiders had made.

Yuk. Out of 11 stocks only ONE was up. Two were the same and the other 8 were severely depressed. You could have lost a lot of money following those insiders leads.

What lesson did I learn? Do your own homework and don't follow the crowd because you think they've got inside knowledge you don't. And especially don't fall in love with one idea (like insider buying) without doing some back testing to see how it has performed.

I still own the stock I bought but have since done some research through Value Line that keeps me from selling right now. I do think Mr. Cramer is a smart person. I just hope he's smarter than the 10 losers and is the one that made money.

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