In an average year, close to 200,000 insider filings are reported to the SEC, and of these transactions, only a tiny fraction are deemed illegal by prosecutors. Retail investors, then, can track legal insider purchases and use them to beat the market. At Insider Monkey, our research indicates that it’s possible to generate outperformance of about 7 percentage points a year by using this tactic.
Now, it’s crucial to understand that buying activity is a stronger signal than selling activity. As the old adage goes, there are many reasons for an insider to sell shares of his or her company, but only one, very bullish reason for them to buy.
When tracking insider buying, piggyback investors are better served by following multiple purchasers into a company, and it’s best if this activity has occurred within the last three months. Of the 6,000-plus publicly traded companies listed on the NYSE and NASDAQ exchanges, just 290 have experienced insider buying by three or more executives over the past 90 days (check out our full database of insider transactions).
But that’s not all.
See, it’s also important to mesh this analysis with the smart money’s consensus. As demonstrated by the MarketWatch/Insider Monkey Billionaire Hedge Fund Index, mega-fund managers’ top picks are able to beat the market quite handily. In 2012, this index returned 24.3%, beating the S&P 500 ETF (NYSEARCA:SPY) by 8.3 percentage points. The details of our market-beating strategies can be seen here, but our conclusion is simple enough: there are stocks out there that are worth “monkeying,” so to speak.
One of the most prominent billionaires of our time is Ken Fisher, manager of mammoth private investment firm Fisher Asset Management. Fisher’s fund reported its fourth quarter 13F filing last month—ahead of most of its “hedgier” peers. As expected, we’re going to determine which of his equity holdings are also well loved by insiders.
Out of the over 500 companies Fisher reported having a stake in at the end of December, just two have seen extremely bullish insider activity over the last 90 days. This “elite” duo is TriQuint Semiconductor (NASDAQ:TQNT) and MKS Instruments, Inc. (NASDAQ:MKSI), sitting at No.’s 161 and 198 in Fisher’s $36 billion portfolio.
TriQuint has been in the upper half of Fisher’s equity holdings since we began tracking the fund in the fourth quarter of 2010, but the small-cap semiconductor company hasn’t been a particularly good investment over this time. The stock is down close to 55% since the start of 2011, and shares have lost 20.3% over the past year. Can shares rebound?