Insider buying is one of the most useful signals available to individual investors, but it is also frequently misunderstood.
An executive buying a few thousand shares does not automatically make a stock attractive. Corporate officers sometimes purchase stock to satisfy ownership guidelines, create a favorable impression, or demonstrate symbolic confidence after a disappointing quarter.
The signal becomes far more interesting when several insiders invest their own money at roughly the same time. It becomes even more compelling when the company generates substantial free cash flow and the stock trades at a low multiple of that cash flow.
That combination can identify exactly the type of opportunity Wall Street tends to overlook: a profitable, cash-generating business whose shares have fallen far enough to attract the people who understand the company better than anyone else.
Words Are Cheap. Purchases Aren’t.
