Here's a headline you've probably seen: "CEO dumps $40 million of stock." It sounds like a warning. Very often it isn't. Dig into the filing and you find the CEO has sold about the same amount every quarter for years, on a schedule set up long before. It's a routine paycheck dressed up as a warning sign.
That's the thing about insider trades. The data is public, it's fast, and it's free. But most of it is noise, and you need to know which few lines are worth your attention.
What a Form 4 is
When an officer, a director, or anyone who owns more than 10% of a company buys or sells that company's stock, they have to tell the SEC. The form is called a Form 4, and it's due within two business days of the trade.
Two days is quick. Compare that to fund filings (45 days late) or congressional trades (up to 45 days late). If you want to know what the people running a company are doing with their own money, this is the freshest public signal there is.
The letter that matters most
Every line on a Form 4 has a transaction code. You'll see a lot of them, but here are the ones that come up again and again:
- P: an open-market purchase. The insider took cash out of their own pocket and bought shares at the market price.
- S: an open-market sale.
- A: a grant or award. The company gave them shares, usually as pay.
- M: an option exercise. They turned options into shares.
- F: shares held back to pay taxes or the exercise price.
- G: a gift.
If you take one thing from this post, take this: P is the code worth slowing down for. Almost everything else is compensation moving around.
An A is a paycheck. An M followed by an F is the paperwork of turning that paycheck into stock. An S is often an executive doing what any normal person does with a big chunk of their net worth in one stock, which is selling some.
A P is different. Nobody forced it. The person who sits in the board meetings looked at the price and decided it was cheap enough to spend their own money on.
Why buys say more than sales
Peter Lynch put it better than I can: insiders sell for lots of reasons, but they buy for only one.
People sell to pay for a house, a divorce, a tax bill, a kid's tuition, or just to diversify. None of that tells you about the business. People buy because they think the stock is going up. That's about it.
So when I scan the insider page, I mostly skip the sales. I stop on purchases, especially:
- Buys by the CEO or CFO. They know the numbers best.
- Several insiders buying around the same time. One person can be wrong. Three directors buying in the same two weeks is harder to wave away.
- Buys that are big for that person. A director buying $20,000 of stock is a nice gesture. A CFO putting in a year's salary is a statement.
- Buys after the stock has fallen. Buying into weakness is more telling than buying at an all-time high.
The 10b5-1 box
Since 2023, a Form 4 has a checkbox that says whether the trade was made under a Rule 10b5-1 plan. That's a trading plan set up in advance, so the insider can't be accused of trading on what they know that week.
A planned sale is close to meaningless as a signal. It was decided months ago. A planned buy is a little weaker than a spontaneous one, for the same reason. When you see that box checked, turn the volume down.
When sales do matter
I don't ignore sales completely. A few patterns make me look twice:
- A sale that is not on a 10b5-1 plan, and is large compared to what that person usually sells.
- Several top people selling at once, outside their normal schedule.
- An insider who sells everything rather than a slice.
Even then, a sale is a reason to read more, not a reason to act.
How we show it on Nakag.ai
Our insiders page pulls Form 4 filings straight from the SEC and lists them as they come in. You can search by company or by person, and the list goes back a full year. Every stock page also has an "Insiders and funds" section, so you can see who's been buying or selling a company right next to its price chart and numbers.
My own habit is simple. I filter in my head for P, I look at who it was and how big it was, and then I go read the company's last earnings report. The insider buy doesn't tell me to buy. It tells me where to spend an hour.
The honest part
Insider buying is a decent signal on average, and a bad one on any single trade. Insiders are early all the time. They buy, the stock keeps falling for a year, and they turn out right only after you've given up. Sometimes they're just wrong.
Use it as a starting point. Read the filing, check the code, look at the person, and then do the actual work.
Chris
Nakag.ai
This post is for learning, not investment advice. Do your own research before you buy or sell anything.