Insider buying on beaten-down stocks was the single-best "Buy" signal you're going to find..
In one paper, professors Carr Bettis, Don Vickrey and Donn W. Vickrey found that "outside" investors who mimicked the moves of insiders would have outperformed other stocks of the same size and risk by nearly 7% per year - even after factoring in transaction costs.
In a second study, University of Houston Prof. R. Richardson Pettit and P.C. Venkatesh from the Office of the Comptroller of the U.S. Currency found that insiders tend to increase their net purchases up to 24 months before a stock generates an above-average return.
Independent researcher Market Profile Theorem (MPT) showed that insider trading trends signal an up-and-coming shift in market sentiment. To spotlight those trends, MPT analysts use a device known as the "Brooks Ratio," which divides total insider sales of a company by total insider trades (purchases and sales) and then averages this ratio for 2,500 stocks. If the average Brooks Ratio is less than 40%, the market outlook is bullish. But a ratio that exceeds 60% is bearish.
And University of Michigan Professor Nejat Seyhun, author of "Investment Intelligence from Insider Trading," came to the same conclusion that Tony and I reached: Stock prices rise more after insiders add to their holdings than they do after insiders sell.
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