Are Insiders Giving Investors a Heads-Up?

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Considering the recent turmoil in the housing and financial markets, many investors might be getting cold feet about committing more money to stocks these days. But corporate insiders seem to have a different view.

According to the Financial Times, insider buying in August reached $252 million, the highest level since 2003. That's backed up by a recent report by Form4Oracle -- a website that tracks insider transactions -- noting that in the four-week period ended Aug. 17, the ratio of net buyers to sellers was 48%, a 65% increase over the previous four-week period. It's also the highest ratio measured by Form4Oracle over the past four years.

Following those in the know
Investors would do well to watch what the insiders are doing, particularly when they're buying. As Peter Lynch has noted, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."

Fellow Foolish commentator Tim Beyers regularly monitors what insiders are buying. You can get the inside track by using the same information at Form4Oracle, or at similar sites like SECForm4.com. Executives are required to file their transactions with the SEC within two days of making them. While you could wade through all of the forms at the SEC website, these specialized sites only track executives' purchases, making your job that much easier.

With Form4Oracle, it's easy to find well-known companies like Yahoo! (Nasdaq: YHOO), Barnes & Noble (NYSE: BKS), and American Express (NYSE: AXP). But Tim's column gives you more on some names you might not otherwise pay much attention to, such as Hercules Offshore (Nasdaq: HERO), American Eagle Outfitters (NYSE: AEO), and Lazard (NYSE: LAZ).

Company co-owners
Along with insider purchases, investors would do well to note which companies have executives who own large chunks of their own stock. When senior management has a significant stake in the company -- when the CEO and the CFO are putting their own money on the line -- it says something about their confidence in the business. At Motley Fool Hidden Gems, Tom Gardner looks for high management ownership of company stock, and not just shares gained through grants of stock options. That's what really underscores executive commitment to the company.

Insider buying most recently surged like this in August 2006, when markets were swooning -- just prior to the market rally that closed out the year. Using specialized websites to gain access to this one-two punch -- high insider ownership, plus executives buying back their shares -- might make it possible for you to get on the inside track to the next market rally for your own portfolio.

Scoop the insiders with these related Foolish articles:

• What Insiders Can Tell You
• Retail Insiders Are Busy
• The Inside Track to Big Profits