The asymmetry nobody explains
Insiders sell for dozens of reasons: diversification, a house, a divorce, tax planning. They buy for essentially one reason.
That asymmetry is why purchases carry more information than sales.
Filter out the noise first
Most insider selling you see in headlines is scheduled in advance through a 10b5-1 trading plan. These plans are set up months ahead and execute automatically.
They tell you nothing about what the executive thinks today. A Form 4 filed under a 10b5-1 plan is close to noise.
What you want instead: open-market purchases, coded "P" on Form 4, made at market prices by someone with operational responsibility.
Cluster buying is the pattern that matters
One executive buying is weak evidence. Three or more insiders buying within a few weeks, at prices near the current level, is a much stronger signal.
It is hard to coordinate and expensive to fake. Cluster buying after a sharp price decline deserves real attention.
Who is buying matters
Rank insiders roughly like this: the CEO and CFO first, then operating segment heads, then directors. A director buying is interesting; a CEO buying a meaningful amount of their own net worth is a different order of event.
Size relative to their own holdings
A 50,000 dollar purchase by a CEO who owns 20 million dollars of stock is a rounding error. The same purchase by a director who owns 300,000 dollars is a real commitment.
Always ask what fraction of their position changed.
What insider data cannot tell you
Insider buying tells you someone close to the business believes the price is attractive. It does not tell you about the next quarter's earnings, a pending lawsuit, or a competitor's breakthrough.
Treat it as one input that improves your odds, not as a thesis on its own.
A practical screen
Track Form 4 filings weekly. Flag open-market purchases above a threshold, ignore planned sales, and highlight clusters of three or more insiders within a 30-day window.
Then read the underlying 10-K before acting on any of it.
