InsiderEdge is a top-notch analytics tool inside the BBAE app that elevates the concept of investing based on corporate insider trades data to the next level.
How Does It Work?
InsiderEdge™ uses data exclusively from SEC Form 4 filings. These filings are mandatory disclosures by insiders, including executives, directors, and 10% owners, outlining their stock transactions.
We leverage AI to collect and analyze these filings, delivering actionable insights to our users. For each transaction, we provide comprehensive data, including how much the insider increased or decreased their holdings, the transaction size relative to their past trades, and, most importantly, the insider’s historical track record in how their prior insider trades performed.
Historical Returns: Measuring Insider Trade Performance
We use AI to analyze insider trading data and provide insight into historical trade performance. This helps you assess how successful an insider’s past trades have been and what it might mean for their latest purchase.
Key Metrics
For each trade, we analyze returns over 1 month, 3 months, 6 months, and 1 year using:
- Weighted Return: The average return, adjusted for purchase size.
- Median Return: The middle value of all returns, which smooths out extreme results.
- Win Rate: The percentage of trades where the stock price increased after the purchase.
How to Read the Data: A Sample Buy Transaction
Example: Senseonics Holdings, Inc. ($SENS)
In this example (as shown in the image):
- The Director purchased 325,000 shares at $0.42/share for a total of $135K, increasing his holdings by 29.9%.
- This is his 4th reported trade, and it is the smallest purchase to date for this specific insider, as his median purchase size is significantly larger at $1.08M.
A large percentage increase in vested holdings (like the 29.9% shown here) often signals a notable commitment to the stock from the insider. It suggests the insider had a relatively smaller stake prior to this purchase, making this investment a meaningful increase in their exposure.
However, the smaller dollar value of this trade compared to their historical purchases suggests that this position might not be the insider’s primary investment focus. The insider could have significant holdings or commitments in other companies, which may reduce the weight of this purchase as a signal of confidence in this particular stock.
Let’s break down how to interpret the historical data, using the 1-month timeframe as an example:
1. Weighted Return (35%):
This value represents the average return of all the insider’s past trades within 1 month, but it’s weighted by the size of each trade. Larger purchases have a greater impact on this number, as they reflect stronger conviction or higher investment levels.
- A positive weighted return, like 35%, means that on average, the stock price increased by 35% in the month following the insider’s previous purchases.
2. Median Return (22%):
The median return represents the middle value of all returns from previous trades, ranked from lowest to highest. Unlike the weighted return, the median isn’t influenced by the size of individual trades.
- A median return of 22% indicates that half of the insider’s past trades achieved a return above 22%, and half fell below it.
3. Win Rate (100%):
The win rate tells you how often the insider’s previous trades have resulted in a stock price increase. In this example, the win rate is 100% (3/3), meaning that for all three prior trades, the stock price was higher one month after the insider’s purchase.
- A 100% win rate suggests a high level of consistency in the insider’s short-term success.
How to Read the Data: A Sample Sell Transaction
In sell transactions, a low win rate can still indicate the insider’s success in timing their sales.
- A low win rate means the stock price did not increase after the insider sold, which suggests they sold at the right time.
- Conversely, a high win rate for a sell transaction means the stock price increased after the sale, signaling that the insider may have sold too early.
Example: Vice President – Sales at KOSS CORP ($KOSS)
In this example (as shown in the image):
- The Vice President sold 25,000 shares at $7.39/share for a total of $185K, reducing their vested holdings by 2.8%.
- This was their 11th largest sale out of 13 total trades, with a median sale size of $374K.
We can use the 1-month timeframe as an example again:
- The weighted return is -33%, and the median return is -19%.
- These negative returns indicate the stock price dropped after the insider’s sale, validating the timing of their transaction.
- The win rate is 8% (1/12 trades).
- A low win rate means the stock price did not rise after 11 of 12 sales, reinforcing that the insider sold at favorable moments.
The same logic applies to 3-month, 6-month, and 1-year timeframes. Negative returns and low win rates in sell transactions indicate the insider’s ability to sell before the stock price declined further.
For sell transactions, a low win rate combined with negative returns is often a sign of well-timed trades, where the insider exited before further price drops.
Why This Data Matters
Analyzing insider trades—such as purchase or sale size, changes in holdings, and historical performance—provides a helpful framework for understanding insider sentiment and potential stock signals. Patterns like high win rates or consistent returns can suggest well-timed trades, while large increases or decreases in holdings may indicate strong conviction or a shift in the insider’s outlook.
However, it’s important to approach this data with caution. Smaller trade sizes, especially compared to an insider’s past activity, may reflect diversification rather than strong conviction, while low win rates could suggest less reliable timing. Conversely, large trades or sudden increases/decreases in holdings warrant attention but should not be interpreted in isolation.
Investors should view insider trade data as one piece of the puzzle and combine it with broader analysis, including company fundamentals, market conditions, and overall risk factors. While insider behavior can offer valuable context, it should never be the sole basis for making investment decisions.
Disclaimer: The content provided by InsiderEdge™ is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any securities. The historical performance noted in this post is not is not indicative of future results. Investing involves risk, including the potential loss of principal. Use the platform at your own risk and consult a financial advisor before making any investment decisions. In partnership with Yellowbrick Investing Inc.
