Following Smart Money: How To Analyze Insider Buying and Selling

Guide your investment decisions by following the smart money.

Jan 14, 2025

What if you could peek behind the curtain and see what the people running the show are really thinking about their company’s future? Well, that’s exactly what insider activity lets you do.

Insider buying and selling—executives, board members, or key employees trading their company’s stock—can provide an almost unfair edge. Why? Because these folks know the business inside and out. They’re not guessing; they’re betting on (or against) themselves.

For both Canadian and U.S. investors, tracking insider activity is like following a trail of breadcrumbs left by the smartest people in the room. Let’s break it down in Tim Ferriss fashion: no fluff, just actionable insights.

Step 1: What Exactly Is Insider Activity?

Think of insider activity as the GPS to corporate confidence—or lack thereof. When insiders buy, it’s often a sign they believe their stock is undervalued or poised for a big win. When they sell, well, it could be anything from a bad omen to paying for a new yacht.

Here’s the quick-and-dirty breakdown:

Insider Buying: A bullish signal. They think the company is worth more than the market realizes.
Insider Selling: Could mean trouble—or nothing. Context is key.

Step 2: Why Should You Care?

Let’s talk incentives. Insiders live and breathe their companies. They know the deals being negotiated, the risks on the horizon, and the game-changing plans nobody else does. When they put their own money on the line, it’s worth paying attention.

Still need convincing? Check out these studies:

Historical data: Stocks with heavy insider buying often outperform the market.
Insider selling: While not always predictive, when multiple insiders sell at the same time, it’s like a poker table full of players suddenly folding.

Step 3: Tracking Insider Activity (Without Burning Time)

For U.S. Investors

The U.S. plays by SEC rules. Insider trades are public, and the best part? They’re easy to find.

Head to the SEC’s EDGAR database.
Look for Form 4 filings (this is where the insider action lives).
Want shortcuts? Use platforms like Yahoo! Finance, Finviz, or Nasdaq to get the scoop.

For Canadian Investors

SEDI (System for Electronic Disclosure by Insiders) is your go-to tool. Here’s the 80/20:

Visit www.sedi.ca.
Search for the company or insider to see their latest trades.
Don’t want to dig? Use tools like TMX Money or CEO.ca for a summarized view.

Step 4: Interpreting Insider Activity Like a Pro

Don’t Sweat the Small Stuff

One guy buying 100 shares isn’t a signal—it’s noise. But when the CEO and CFO start buying in bulk? That’s the smart money talking.

Not All Selling Is Bad

Remember, insiders sell for many reasons: buying a house, paying taxes, or diversifying their portfolio. But if multiple insiders are dumping stock at the same time, it’s worth digging deeper.

Insider Buying > Insider Selling

When someone buys shares with their own cash, they’re betting on a payday. Selling doesn’t carry the same weight, so focus more on the buyers than the sellers.

Step 5: Red Flags to Watch For

Consistent Selling: If insiders are selling regularly but never buying, ask yourself: Why?
Big Dumps Before Bad News: Sometimes insiders sell ahead of earnings misses or negative press. It’s not always intentional, but it’s something to watch.
Stock-Based Compensation Sales: Selling stock that was granted as part of compensation doesn’t always mean they lack confidence—it’s often just cashing in on a paycheck.

Step 6: Use Insider Activity to Your Advantage

Here’s how to work insider activity into your investment strategy:

Make It Part of Your Toolkit
Insider activity isn’t the whole story—it’s a chapter. Combine it with valuation metrics (PE ratio, EPS, free cash flow) and qualitative analysis (think competitive advantage and market trends).
Focus on Big Moves
A CEO buying $5 million in stock? That’s a signal. A director buying $5,000 worth? Meh.
Look for Patterns
Insiders buying consistently over time is often a green flag. Selling in unison could be a red one.
Watch for Industry Trends
Sometimes insider activity reflects broader market shifts. For example, if insiders in the energy sector are piling in, it might mean a commodity boom is brewing.

Real-World Examples

Shopify (TSX: $SHOP): In late 2020, insiders loaded up on shares, betting on the e-commerce boom. The result? Massive gains during the pandemic.

Tesla (NASDAQ: $TSLA): Elon Musk’s high-profile sales often dominate headlines, but insider buying from other Tesla executives has frequently signaled growth.

Final Thoughts: Follow the Leaders, Not the Hype

Insider activity isn’t magic, but it’s a window into the thinking of the people who know the company best. For Canadian and U.S. investors alike, tracking insider buying and selling is one of the smartest, simplest ways to level up your investment strategy.

Here’s the playbook:

Use tools like SEDI (Canada) or EDGAR (U.S.) to track trades.
Focus on big buys, not small noise.
Combine insider insights with your own research.

Remember, the insiders don’t always win—but they’re rarely guessing. Pay attention to where the smart money goes, and you’ll stay ahead of the game.

Disclaimer: This post is for educational purposes and should not be taken as financial advice. Always do your own research or consult a qualified financial professional before making investment decisions.

What’s your take on insider activity? Drop a comment or share your favorite insider analyzing tip-off below!