Insider Trading Activity

One of the most important concepts of contrarian investing is that you must invest like a corporate insider, and not like an amateur.  Top corporate insiders reflect the well informed minority of investors (i.e. the "smart money"), while the masses reflect the exact opposite.  Top corporate insiders sell progressively in advance of major peaks and buy progressively in advance of major bottoms.  The masses buy and sell in lump sums based on things like a tip from one's uncle or because a certain security is going up or because it was recommended by someone popular like Jim Cramer.  Top corporate insiders are not day traders - they buy or sell only when there is a compelling reason to take action.  They understand their industry the best, and they do not get emotional in their trading.  Top corporate insiders buy and sell for all the right reasons, while the masses buy and sell for all the wrong reasons.  There are many reasons why top corporate insiders will always trump amateur investors, and I will attempt to discuss those reasons in more detail in future posts. We have currently had an extremely extended rally in such well known indices as the S&P 500 and the Russell 2000.  This huge rally since September 2010 has featured a huge amount of selling by top corporate insiders relative to buying, concentrated at the important peaks.  While the masses believe that there is no longer any risk in the market because "stocks only go up" or "the Fed has my back", top corporate insiders have been selling the stock of their companies at their most aggressive pace ever.  This behavior by top corporate insiders tells us everything that we need to know about the future market direction.  The next major intermediate term move in the markets which will be DOWN with a capital "D". A daily summary of corporate insider trading activity can be obtained here: http:\\j3sg.com