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When most people hear the term "insider buying," unfortunately the first thing they think of is illegal insider trading -- when a company executive or insider trades on information that has not been made available to the general investing public. Obviously that's not the kind of insider buying you -- or the Securities and Exchange Commission -- want. Insider Buying = Higher Stock Prices A number of studies have shown that good things happen when insiders invest in their own companies. The most famous work was conducted at the University of Michigan by Professor Nejat Seyhun, who compiled data on over one million insider transactions over a 21-year period. According to his findings, stocks aggressively bought by insiders outperformed the market by +8.9% in the 12 months following the transaction. There are a number or reasons to explain this phenomenon. Clearly the most obvious is that when a company is confident about its business model and prospects for the future, company executives want to be along for the ride. But there's another, maybe, less obvious reason. Insider Ownership = Shareholder Friendly Stocks When company execs invest in their own company, their interests are better aligned with those of their investors. They feel the pain when the stock slides. They share the gain when it rises. As insider investors, executives are more in tune with issues that concern the company's shareholders. They are likely to have more transparent accounting policies and solid, complete disclosures -- and therefore will be less likely to generate negative surprises for shareholders. They will be more open to shareholder-friendly policies like stock buybacks and dividend distributions can directly enhance shareholder value. Every publicly traded company will say they have shareholders' interests at heart. But its one thing to say it. It's another thing to actually have "skin in the game." StreetAuthority Kicks In $50,000 for Stock of the Month newsletter My company understands how important it is to have skin in the game. That's why they've invested $50,000 of the company's money in Stock of the Month's investment picks. They absolutely want my newsletter to be aligned with the interest of every investor out there. And I absolutely love it. It makes me want to work that much harder to find that one great investment opportunity each and every month. It also is why I'll never have more than 12 investments in my "Stock of the Month" Portfolio. I want to be able to watch each investment like a hawk. I want to minimize any loss and maximize every gain. And investors will actually get a chance to do one better than my own company. Subscribers to my monthly newsletter get their newsletter 48 hours before StreetAuthority gets to execute its trade.
P.S. If you like to learn more about my newsletter -- and why StreetAuthority is so confident about Stock of the Month, visit this link.
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