Significant Officer Buying

There is significant academic research that suggests corporate insiders outperform the market when buying shares in their own companies. This screen identifies companies with significant officer buying in the last year where the average purchase price of the shares is higher than the current share price. In other words, we identify companies where the officers open market purchases are underwater.

There are three key metrics in this screen.

• The first is the number of officers buying. We believe that of the three types of corporate insiders that disclose purchases, open market purchases made by corporate officers are most informative because officers typically invest their own money (as opposed to board members and 10% owners who are often fund managers), and they are directly involved in the daily operations of the business (again, as opposed to board members and 10% owners). When multiple officers use their own money to buy shares on the open market, we interpet this as a strong bullish signal.
• In addition to tracking the number of officers buying, we look at the total dollar amounts spent to acquire shares. Higher dollar trades would suggest a higher officer sentiment.
• And finally, we look a the average purchase price of the shares bought. If the current share price is below the average purchase price (meaning their trades are at a loss), then the officers will be highly motivated to recoup those losses.