Following the insider purchases could be very profitable. No one knows the company and the sector better than the insiders of the company.

The following represent good hints and traps of using this information.

• Ignore most sales as insiders sell the stocks for different reasons such as diversification, buying a mansion, divorce settlement, etc.
• Only consider sales if insiders are dumping most of the owned stocks. In this case, you want to short the stock.
• Consider the net purchases (= Total Purchases - Total Sales).
• Only consider purchases close to the market prices.
• Ignore all options.
• True insiders are officers such as CEO and CFO.
• 'Cluster purchases' is a better indicator.
• Consider market timing. When the market is going to plunge, all stocks most likely will go down.
• Consider basic fundamentals. If the fundamentals are bad, the stock most likely will not rise. There are exceptions such as approval of a new drug or unexpected profit.
• Consider technical analysis and charts.

I have two performance summaries: one based on my stocks with insiders' purchases and one from a website. Both prove that following insiders' purchases is profitable.

This book started with Market Timing. When the market is going to plunge, most stocks including those with heavy insiders' purchases will lose value. Hence, do not buy any stocks and sell most stocks when you receive the exit signal.

I have a simple chart to identify market plunges. It depends on the stock data, so it will not identify the peaks and the bottoms precisely, but it will spare you for further losses and will instruct you when to reenter the market. It worked for the last two market crashes. It will detect the next crash, and hopefully it will give us enough time to react as the last two.

The selected website identifies stocks with insiders' purchases. Ignore those purchases that do not meet our requirements. We should have identified a few stocks for further evaluation. I use fundamental metrics to ensure they are fundamentally sound. Many fundamental analyses are available free from many sites. Then look for intangibles and do a thorough qualitative analysis on each selected stock. There is no magic formula, but due diligence will pay off in the long run. This book does not promise overnight wealth.

Other topics include how to set order prices, stop loss, tax considerations and a trade plan (Section IV). When to sell a stock is important. Technical analysis is used sparingly but it could be very useful. In some cases, it shows the uptrend of the stock before insiders' purchases.

Periodically review your big losers and big gainers to see whether any lessons to be learned.

As in any strategy, you need to start with paper trading and then with limited positions. There are many pitfalls in following insider purchases. It is safer to buy stocks with good fundamentals and protect the losses with stops.

This book is intended for a retail investor and I am one myself. This book is not written by a journalist or a professional writer who may never make a buck in the stock market.

The strategies described here have been used in my book Best Stocks 2014, According to Me. From 12/16/13 (the publish date) to 3/4/14, the list of all 135 selected stocks beat SPY (a ETF simulating the S&P 500 index) by 103% and the list of 9 small cap stocks beat SPY by 500%. There are similar results from later books in this series.

Updated: 04/2022.
Size: 195 pages (6*8).