Corporate insiders enjoy a unique benefit.
They are intimately familiar with their business … more than you and I will ever be.
No one lives and breathes a firm and every facet of it more than management. And though board members don’t perform the day-to-day operations (outside the CEO), they are in a unique position to understand a company’s prospects.
Most board members have decades of experience and have seen a wide variety of situations.
If a stock sells off, they can and do provide management with advice on how to address it. They also recognize if a company is onto something big.
This is why it makes sense to monitor insider buying and selling.
It’s a great way to get tipped off on a potential uptick in a share price.
How to Monitor Insider Trading Patterns
A picture really is worth a thousand words.
In the stock chart below, the green symbols represent insider buy signals of Natural Health Trends Corp. (Nasdaq: NHTC).
Do you have a guess as to where the buyers expect the stock price to go next?
(Source: Bloomberg)
From March 2010 to April 2014, Director George Broady bought 2.4 million shares for just more than $1.50 each.
By the end of his buying, the cheapest insider purchases he had made were already several times his purchase price.
And shares didn’t stop there:
(Source: Bloomberg)
They peaked near $54 in 2015.
Broady believed in what the company was doing. And he backed his beliefs with his own money.
Natural Health Trends’ products promote well-being. It distributes personal care, wellness and “quality of life” products directly to consumers.
Today, NHTC has subsidiaries throughout Asia, the Americas and Europe. And it plans to continue growing in all three of these areas.
It started operating in the U.S. in 2001. After moving to Canada, it expanded into Asia in 2002. And it kept growing. That geographic expansion brought more sales.
Back when Broady was buying in 2010, NHTC had annual sales of $23 million. He stopped buying in 2014. At that point, sales had already quintupled to nearly $125 million.
The company generated positive free cash flow, which it consistently grew over this period.
And it didn’t have any debt.
Looking back, this was a no-brainer. But we can’t make money on an idea if we can’t find it. That’s why we follow insider trading. These trades help us “catch wind” of some great investment opportunities.
Like Broady’s tip-off on Natural Health Trends.
The above chart shows why it is so important — and potentially lucrative — to follow insider trading activity.
I Encourage You to Tune in to a Special Event
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Good investing,
Brian Christopher
Senior Analyst, Banyan Hill Publishing
