If Motley Fool co-founder and CEO Tom Gardner could only use one factor to choose investments for the rest of his life, he knows what he'd pick. "I wouldn't look for growth," Tom says. "I wouldn't look for a great balance sheet. I'd focus only on insider ownership."
Really? Tom would give up the security blanket that is the balance sheet for something as seemingly unimportant as insider ownership? Preposterous! Absurd!
And completely brilliant.
When you think about it, CEOs and company insiders have the best view of their company. They know the challenges it faces, and the potential it holds. If insiders think their company will keep bringing in great returns, why wouldn't they invest in it? Conversely, if insiders know that things are looking dire, they'll be more likely to sell.
Need an example? Quality Systems
ATP Oil & Gas
The same goes for Dell's
If a company's insider ownership can help determine its strength, it can also reveal a company's weakness. Consider Travelzoo
The value of insider buys and sells
Although there's no surefire way to know how a company will do in the future, insider buying and selling can represent strong indicators. If you see CEOs selling large portions of their shares, you may want to steer clear. Likewise, CEOs who buy shares provide a pretty good sign that they believes their company will do well in the future. That's no guarantee of success, but it sure beats a company in which insiders lack the confidence to put their money where their mouths are.
What do you think? Want to keep up with any of the companies mentioned above? Click on their links to add them to your watchlist.
Fool contributor Katie Spence is looking for insider value on a cloudy day. She doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Quality Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.