The profitability of insider trading has been studied in numerous studies over the past several decades, with most studies concluding that corporate insiders are better informed about their companies’ future prospects than market analysts, retailer investors or other stock market participants and trade profitably based on that “privileged” information.
Most of these studies point to significant abnormal returns for insiders’ purchases of securities, as well as conclude that purchases are more informative than sales. At the end of the day, there is a high number of reasons to sell shares, including liquidity needs or portfolio diversification, but the primary reason for buying shares is to make a profit. Past research also shows that Board members and executives are extremely good at timing their transactions, with their trading approach focusing on “buying low and selling high”. In fact, insiders’ contrarian approach to investing might actually explain their trading success. All in all, retail investors could find insider trading metrics very useful for the improvement of their stock selection and analysis processes. Without further ado, let’s discuss a set of noteworthy insider transactions reported with the SEC during the first trading day of this week.
Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
Board Member of Growing Provider of Whole Car Auction Services Buys Shares
To begin with, one member of KAR Auction Services Inc. (NYSE:KAR)’s Board of Directors increased his holding of KAR shares this past week. Board member Mark E. Hill purchased 12,000 shares on Friday at a cost of $41.78 per share, which lifted his overall holding to 25,500 shares.
Although the provider of whole car auction services and salvage auction services in North America and the United Kingdom has seen the value of its shares advance by 13% since the beginning of the year, Mr. Hill keeps boosting his ownership of KAR shares. KAR Auction Services Inc. (NYSE:KAR)’s revenue for the thee months ended June 30 was $771.8 million, up from $658.3 million posted a year ago. The increase in the company’s top line primarily reflects an increase in the number of vehicles sold, as well as an increase in revenue per vehicle sold. The number of used vehicles sold in North America through whole car auctions were around 8.7 million, 9.2 million and 9.8 million in 2013, 2014 and 2015, respectively. More importantly, KAR Auction Services anticipates used vehicle auction volumes in North America to exceed the 10 million units-threshold in 2016 and in each of the subsequent two years. Amy Minella’s Cardinal Capital was the owner of 1.99 million shares of KAR Auction Services Inc. (NYSE:KAR) at the end of the June quarter.
The next two pages of this insider trading article will reveal another set of noteworthy insider transactions reported with the SEC on Monday.