Insider trades: Follow the leaders?
After all, the theory goes, the people at the top of the ladder know their company best.
D
EAR HARRY: A friend's son works in the advertising department of one of the big Internet companies. A couple of months ago, he was bragging to us about his success with his company's stock. But I was intrigued when he said he buys its stock when the big wheels at his company do. He said that he gets his info on the Internet. After all, the people who know the company best are those at the top of the ladder. I dismissed his bragging as hot wind until I tried a dry run. It worked out just fine, even with the recent volatility. Am I just lucky or is there really something to this idea? Do I follow insiders on selling, too?
WHAT HARRY SAYS: There are all kinds of plans regarding the purchase and sale of stock. Every one has at least one glaring negative. Suppose the insiders are wrong. They may be wrong because of conditions outside the company - some unforeseen natural disaster, new competition or innovation. With that caution, many people are successful trading this way. Just be sure that more than one insider does the buying, and that the buying is significant (a good rule is at least 4 percent of present ownership). The buyers should be cash buyers rather than option purchasers. On the sales side, you have to be careful, because the sale may be made to get enough cash for the insider to buy something else, like a home or a fancy car.
Email Harry Gross at harrygrossDN@gmail.com, or
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