Fundamental Tools – Insider Ownership

In any type of business, generally the best incentive to succeed is money. So if top executives of a company own major shares, then they have a lot more incentive to make wise business decisions. Obviously, if they want to do everything they can to make the stock go up, then that should be a good sign for potential investors.

There are 2 main types of ownerships that are usually clumped together: insider and institutional ownership. They can usually be clumped together because the big amounts of money these institutions invest in a company can gain them some say; however, we’ll be focusing more on insider ownership.

The top executives make management decisions. Because their incentive are tied to producing positive numbers, you can believe they will make good long-term moves. At the same time, you can see when these same insiders buy and sell shares. If their picking up shares, then you can pretty much assume they think the stock is heading higher, and if they start dumping shares then that could be a tip that these particular insiders feel the price is about to drop.

There are many ways to find out what the insiders are doing in a particular company; however, some sites are updated more quickly than others. The easiest method is to check under the “Insider Transactions” link on Yahoo Finance.

Just like other fundamental analysis tools, you can also scan for stocks based on insider ownership and/or institutional ownership of some value you decide.

Screen image below – finviz.com