All Aboard the Bull Market

When I joined the Outsider Club just over two years ago, the market was in a state of uncertainty.

COVID was still raging, “transitory” inflation was soaring, and little by little the market was churning lower.

Despite all that, I decided to keep trading.

But I wasn’t shooting blindly into the dark.

I was trading alongside the richest and most powerful people on the planet.

That’s company insiders, Congress members, and institutions.

By mimicking the trades of these influential market movers, I was able to eke out gains one by one.

Now, not every trade was a winner, but that’s to be expected, as irrational investors can take down even the best stocks.

And this year, after hitting a bit of a rough patch with this interest rate mess, our bets are finally starting to pay off.

We’ve cashed out five double-digit gains so far this year, some in just a few days. And we’ve got more on deck.

How did we do this?

I’ll show you.

And if you’re lucky, I might even throw in a free pick at the end...

Outside Looking In

It starts with three key forms: the Form 4, Form 13F, and political disclosure form.

Today, I’m only going to cover the Form 4. I’ll cover the rest another time soon.

The SEC Form 4: Statement of Changes of Beneficial Ownership of Securities was created during the Great Depression to curb company insiders’ ability to unfairly profit in the stock market from nonpublic information.

The form remains one of the best ways to understand how people in management feel about the future prospects of the company they work for. This document is the first step in determining the strengths and weaknesses of a company from the inside.

Because not all insider activity is meaningful to stock price movements, it’s important to determine what the transaction codes represent and the impact they can have on the stock.

If you’re not an insider (a C-level executive, director, or 10% owner of a company), you’ve probably never even seen a Form 4.

The Form 4 document must be filed electronically via the commission’s Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) at SEC.gov within two days of when an insider makes a move within their own company’s stock. Upon the form’s filing, it becomes public record.

Insider buying and selling is different from insider trading, which is illegal and comes with a maximum sentence of 20 years in prison and a maximum fine of $5 million. But don’t worry, that’s not what we’re tracking. We’re looking at public records, so everything we trade on is legal.

The SEC keeps track of all Form 4 filings.

Luckily for us, we can see every move the insiders make.

Just go to SEC.gov, type in the name of the company you want to find, and click “Ownership Disclosures” under the “Selected Filings” section. There you’ll be able to view all insider transactions.

Let’s dive into an actual Form 4 from someone you may recognize...

Here’s a breakdown of the important sections:

• Section 1 — Name of the owner of the shares
• Section 2 — Company name and ticker symbol
• Section 3 — Transaction date
• Section 5 — Relationship of the share owner to the company
• Table I
  
  1. Title of security
  2. Transaction date
  3. Transaction code
  4. Securities acquired (A) or disposed of (D)
  5. Number of shares owned following the transactions

It’s a fun exercise to research the person buying shares. Look into their job background and any connections they have in the industry. It’s a good sign when you see multiple C-suite executives buying at the same time, also called cluster buying. This means the insiders feel good about the financial strength of the company.

The section you’ll want to pay close attention to is Table I, which outlines the buying and selling of securities. This will indicate what type of security is being transacted, including common stock, convertible preferred, employee stock options, etc.

We focus on security purchases because, as the saying goes, insiders sell stock for any number of reasons, but they buy only if they think the stock is going up.

Stock purchases by insiders are a bullish sign or an indication of a rock-bottom price. And if the stock dips below the insiders’ price, you get to purchase shares below what they paid.

That’s how you beat the system and consistently outperform the market.

Take This With You

To recap, here are the Form 4 key takeaways:

• Insider buying is far and away more important than insider selling.
• You want to pay attention to who’s buying and what position they hold at the company. Look for purchases of significant size that take place in clusters.
• Note what price insiders are paying for their own stock, as it’s important to get in at or below the insider price.
• Getting in when insiders do ensures you get in early just like them.

To be clear, we never want to invest based solely on insider transactions because just like anybody else, the insiders can’t time the market. But they’re pretty damn good at predicting the future prospects of their own company.

As you can see, this can be a very time-consuming process to find the best inside trades and make a decision based on who’s buying and at what price.

That's why my team and I spend every waking minute poring over these forms to find the most actionable picks for our premium subscribers.

In the following weeks, I'll cover this topic in more detail, including congressional buying and institutional buying.

But in the meantime, I urge you to watch this insider investor presentation with an urgent buy alert.

It's an upcoming trend that insiders are already getting in on, so the time to act is now.

Stay frosty,

Alexander Boulden
Editor, Outsider Club

After Alexander’s passion for economics and investing drew him to one of the largest financial publishers in the world, where he rubbed elbows with former Chicago Board Options Exchange floor traders, Wall Street hedge fund managers, and International Monetary Fund analysts, he decided to take up the pen and guide others through this new age of investing. Check out his editor's page here.

Want to hear more from Alexander? Sign up to receive emails directly from him ranging from market commentaries to opportunities that he has his eye on.