How to Make Money From Insider Trading Legally

by Fred Fuld III

You may have heard that insider trading is illegal. And it is, un der most circumstances. An insider is a top executive, a director, or a holder of 10% or more of the outstanding shares of a corporation. If an insider gives you information about the company that is not disclosed to the public, and you act on that info to profit from buying or shorting the company’s shares, that is illegal.

However, insiders are allowed to buy shares in their own company, as long as it is reported to the SEC in a short period of time. Also, the purchases and sales that the insiders make is available to the public.

For long term investors, this can be useful information, especially if insiders make purchases, because they usually do so based on a long term horizon. If they sell, it could be for any number of reasons totally unrelated to th company, such as raising funds to buy a house, estate planning purposes, paying for their kids college education, or diversification.

So if you look for the stocks that have has more than a 20% increase in total insider ownership over the last six months, you might find some interesting investment opportunities. All of the following fit that category, plus they ll have price to earnings ratios of less than 15, forward P/E ratios less than 15, and a low price to earnings growth ratio of less than one.