Why Insider Buying Matters

There is an old saying on Wall Street that there are many reasons why management would sell stock (e.g. buying a house, art, etc.) but only one reason why they would buy stock on the open market.

While insider buying is certainly not a guarantee that a stock will move in a positive direction, it may serve as a factor to consider when considering an investment in a security. The theory is that management would only buy their company stock when they think it is going up!

Comment: 

Between December 4th, 2015 and Tuesday December 8th, Steve Wynn, CEO of Wynn Resorts spent $63.8 million to buy more than 1 million shares of his company’s stock on the open market.  He bought stock between $62.41 per share and $64.44 per share.  On December 8th, 2015, Wynn stock closed at $61.80.  On March 31, 2016, Wynn closed at $93.43.

On February 11, 2016 Jamie Dimon, CEO of JP Morgan bought 500,000 shares of his company’s stock. On that day the stock closed at $53.07.  On March 31, 2016 JP Morgan stock price closed at$59.22.  Pundits now refer to February 11th as the “Dimon bottom” as the market as a whole has rallied since Mr. Dimon’s purchase.