When I was looking at colleges, my Dad gave me a very valuable piece of advice: ask current students what they think of the school. Why? Because this “insider activity” is going to give you an honest opinion of the college.
Obviously, I might think twice before deciding to attend a college where many of the students hate the courses, professors, or any other aspects of the university. I would, however, have a pretty good opinion of a college if its students seemed happy there. This is a great factor to consider for any college student. In fact, many college review sources like Princeton Review quantify student happiness and share it publicly.
The same concept can be applied to the stock market in terms of insider activity.
It can be great sign if “insiders,” or, employees, actively invest in their company. For example, these insiders may have special knowledge about why they think the company will do well in the future. Or they might just feel great about the management team.
The insiders would probably not invest their own money in a sinking ship.
On the other hand, if insiders are not actively investing in the company they work at, it could be a bad sign. You might reason that they have a motivation (due to their exposure to information that is not publicly available) to refrain from investing in the stock.
Therefore, many would agree that investing in companies with positive insider activity is desirable.
If you’d like to take it one step further, you might try using a stock screener that accounts for positive insider activity to generate a list of investment ideas that bullishly possess this quality.