Wall Street Sayings About Insiders, Tested With Real Filings
Investing is full of confident sayings. We took the best-known ones about insiders and checked each against every open-market purchase and sale in our records, three months later, against the S&P 500.
By Sepehr Parsa · Founder and editor, WallStPal"Insiders might sell their shares for any number of reasons, but they buy them for only one."
Peter Lynch, One Up on Wall Street (1989)
The test: if Lynch is right, stocks should do better than the market after insiders buy, while sales, made for all sorts of reasons, should tell us little about what happens next.
| Measured | Median move | Median vs S&P 500 | Lagged the index | |
|---|---|---|---|---|
| After insider purchases | 3,109 | +3.1% | −4.3% | 60% |
| After insider sales | 12,313 | +3.4% | −3.9% | 57% |
| After planned sales (10b5-1) | 6,252 | +5.1% | −2.7% | 55% |
| After unplanned sales | 6,061 | +2.0% | −4.9% | 60% |
| After unplanned sales of $1M+ | 1,625 | +0.9% | −6.0% | 61% |
| After unplanned CEO sales | 678 | +0.9% | −6.0% | 59% |
Verdict: Does not hold up. The median stock finished −4.3% against the index after a purchase and −3.9% after a sale. Sales outside a trading plan were followed by weaker results than planned ones, so the "one reason" logic has a mirror image: unplanned selling carries some information too.
"Buy when there's blood in the streets."
Attributed to Baron Nathan Rothschild
The test: Did insiders who bought after their stock had fallen 20% or more in the previous three months do better than those who bought without such a fall?
| Purchases | Measured | Median move | Median vs S&P 500 | Beat the index |
|---|---|---|---|---|
| Bought after a fall of 20% or more | 675 | +2.7% | −6.3% | 43% |
| Bought after no such fall | 1,916 | +2.8% | −5.0% | 39% |
Verdict: Does not hold up.
"Follow the crowd of insiders."
A common rule in insider-trading research
The test: Did purchases made when a second insider of the same company also bought within 30 days do better than lone purchases?
| Purchases | Measured | Median move | Median vs S&P 500 | Beat the index |
|---|---|---|---|---|
| Two or more insiders within 30 days | 1,468 | +3.5% | −3.8% | 41% |
| A lone insider | 1,641 | +2.7% | −4.7% | 40% |
Verdict: No clear difference.
"Put your money where your mouth is."
Proverb
The test: Did bigger purchases (more of the insider's money at stake) do better than small ones?
| Purchases | Measured | Median move | Median vs S&P 500 | Beat the index |
|---|---|---|---|---|
| $1 million or more | 346 | +0.0% | −9.2% | 34% |
| $100,000 to $1 million | 859 | +5.5% | −1.0% | 47% |
| Under $100,000 | 1,904 | +2.7% | −4.8% | 39% |
Verdict: Does not hold up.
"The boss knows best."
Conventional wisdom
The test: Did purchases by chief executives do better than purchases by outside directors?
| Purchases | Measured | Median move | Median vs S&P 500 | Beat the index |
|---|---|---|---|---|
| Chief executives | 467 | +1.9% | −4.7% | 42% |
| Directors (not officers) | 1,349 | +6.1% | −0.9% | 46% |
Verdict: Does not hold up.
How we tested
Every result is three months after the trade: the stock's move from the reported price to the weekly close about 91 days later, minus the S&P 500's move over the same weeks. We use medians, so a handful of huge winners cannot decide a verdict, and call a difference real only when it is more than one percentage point. "Holds up" means the group the saying favors did better; it does not mean the difference will last. Results rebuild every day as new filings and prices arrive, so a verdict can change.
Examples
Lynch ran Fidelity's Magellan Fund from 1977 to 1990, when it returned about 29% a year on average. His line about insiders is one of the most quoted in investing, and academic work has broadly supported the first half: H. Nejat Seyhun's research and Lakonishok and Lee's 2001 study both found purchases more informative than sales.
Explain it like I'm 13
Grown-ups love sayings like "the early bird gets the worm." We took the ones investors repeat about company insiders and checked them like a science experiment: split the trades into groups, see which group did better, and write down whether the saying passed.
Built from SEC Form 4 and 13F filings and STOCK Act reports as read by WallStPal, rebuilt every day. Prices are weekly closing prices derived from SEC data and can lag by a few weeks. Results describe what stocks did, not anyone's profit, and are not investment advice. See our method.
About this page
WallStPal explains public SEC filings and congressional stock trade reports in plain English. Nothing is for sale; the site is free and supported by ads.
How to read it
- Form 4
- The form a company insider (officer, director or owner of more than 10%) must file with the SEC within two business days of buying or selling the company's shares.
- 13F
- A quarterly list of U.S. stocks held by an investment manager with more than $100 million, filed within 45 days after each quarter ends.
- STOCK Act
- A 2012 law that requires members of Congress to report stock trades by themselves, a spouse or a dependent child within 45 days.
A real example
In January 2016, when bank stocks were falling, JPMorgan Chase CEO Jamie Dimon bought 500,000 JPMorgan shares with his own money, worth about $26 million. His Form 4 made the purchase public within days, and investors read it as a strong sign of confidence.
Explain it like I'm 13
We read the long, boring forms that grown-ups file with the government and tell you what they say in normal words.
Data from public SEC filings and congressional reports. Information, not investment advice. Check every number against the filing linked on the page.