Standing on the Shoulders of Giants

Those who know me well, know that I am something of a geek. I spend significant parts of my day reading, testing and reviewing information on everything from markets to baseball. I have also been known to sit down and read academic research on anomalies in the stock market that might help me make money for myself, clients and readers. One of my areas of interest has been insider buying as an indicator or catalyst in deep value situations. I have done a lot of work this year on top executive buying with positive results. In a recent discussion with some friends, I was reminded of the concept of cluster buying.

Cluster buying is the term used when several different company insiders buy stock within a very short period of time. The earliest study on this was done by two of the legends of our business and academic research. Victor Niederhoffer and Jim Lorie (if you are not familiar with these gentleman, break out your search engine and get busy reading) did a study back in 1968 titled "Predictive and Statistical Properties of Insider Trading" and found that stocks with three or more insider buys in a short period of time outperformed the overall stock market by a wide margin. Further research by Jeffrey Jaffe of Wharton, Nejat Seyhun of the University of Michigan and others has confirmed the effectiveness of insider cluster buying....540 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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