
When it comes to analyzing insider trades, investors should keep several important nuances in mind. For example, insider sales can often appear alarming until one realizes that they were made under a predetermined Rule 10b5-1 plan. Because insiders must schedule these trades far in advance of their execution, they don’t provide a clear bearish signal.
Meanwhile, insider buying tends to be a much better indicator for investors. As famed asset manager Peter Lynch once said, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."