Insider Monkey, your source for free insider trading data, has been listing the companies with at least three insider purchases. Some of our readers may have noticed that the companies in this list usually beat the stock market indices. We aren’t the type of website that lures clients by promising unimaginable returns. We will never tell you how we turned $30,000 into $3 million in 18 months. We base our claims on peer-reviewed and published academic papers. Previously we told you that Lakonishok and Lee have shown that stocks intensively bought by insiders beat the market by more than 7 percentage points per year. That’s on the average of course. Their results are based on an analysis of insider transactions between 1975-1995.
One might question the validity of these findings today. Predictably markets are getting more efficient and it is very likely that this type of excess returns might have disappeared. Of course, the markets have been very slow to eliminate the abnormal returns of several other anomalies such as value investing, but you never know.
So, we decided to publish the average returns of companies with at least three insider purchases for the 2004-2009 period. This is an excellent period to stress test previously validated investment strategies because of the many gyrations in the stock market. Our results show that stock purchases by at least three insiders beat the value-weighted market return (this includes the small cap companies as well) by an average of 59 basis points per month. This analysis covers the six years from 2004 to 2009. The annualized excess return is also more than 7 percentage points per year. Naturally, we don’t accept any responsibility for your actions based on these results. You should always do your own analysis or consult a financial advisor before making any investment decisions.