What does the term “insider trading” mean and why do investors need to keep track of insider trading behavior? Insider trading involves the buying and selling of equity securities by individuals who hold access to material, non-public information. While insider trading activity can be both legal and illegal, this distinction is not very important for non-insiders monitoring insider trading metrics.
Let’s move on to the question of whether investors should keep tabs on insider trading behavior or not. Indeed, corporate insiders, namely board members and executives, have a better understanding about their companies’ business operations and future prospects than any of us, so their spur-of-the-moment transactions can serve as great tips for outsiders. There aren’t many reasons corporate insiders are purchasing shares in their own companies, with the primary reason being that these highly-informed individuals believe their companies’ shares are severely undervalued. On the other hand, insiders can sell shares for any number of reasons that may have noting to do with market conditions and firm-specific developments. However, as corporate insiders usually follow the patter of “buying low and selling high”, spontaneous insider selling should be closely monitored by the investment community as well. That said, let’s have a look at a group of noteworthy insider transactions reported with the SEC on Wednesday.
Academic research has shown that certain insider purchases historically outperformed the market by an average of seven percentage points per year. This effect is more pronounced in small-cap stocks. Another exception is the small-cap stock picks of hedge funds. Our research has shown that imitating the 15 most popular small-cap stocks among hedge funds outperformed the market by nearly a percentage point per month between 1999 and 2012 (read more details here).
Asset Bank Holding Company Sees Two Board Members Purchase Shares
Bank of Commerce Holdings (NASDAQ:BOCH) had two corporate insiders pile up shares earlier this week. To start with, freshly-appointed board member, Karl L. Silberstein, acquired a new stake of 3,500 shares on Wednesday at a price tag of $6.57 each. Joseph Q. Gibson, a long-serving board member, snapped up 5,000 shares on the same day for $6.52 each, lifting his overall holding to 101,488 shares.
In early March, the asset bank holding company and parent company of Redding Bank of Commerce completed the purchase of five Bank of America branches located in Northern California. Bank of Commerce Holdings (NASDAQ:BOCH) paid a cash consideration of $6.7 million and acquired $155.2 million in assets, mainly comprised of cash and premises. The acquisition provided the bank roughly $142.3 million of new liquidity, a portion of which was used to reduce the bank’s reliance on brokered and wholesale borrowings. Michael M. Rothenberg’s Moab Capital Partners acquired a new stake of 71,079 shares of Bank of Commerce Holdings (NASDAQ:BOCH) during the March quarter.
The second page of this article will reveal the insider buying activity recorded at two companies, while the last page will discuss fresh insider selling at two other companies.