Ivan Cavric: Trade Like an Insider
Although legal insider trading is not as lucrative as illegal insider trades, it will keep your from jail and allow you to reap the rewards of your investments. Insiders of companies are required to report trades within their company to SEC within two business days. These details are available on various websites. It is important to sort through the vast amount of information to find the company with the greatest potential to make money. It’s easier said than done. It’s actually very simple and doesn’t take too much time.
Before you invest, it is important to establish some parameters. You will be amazed at the speed with which you can identify potential investments and eliminate others once you have these parameters in place. These are the five essential points to consider before investing in a company. After you have selected your stock, we will apply a money management strategy to maximize profits and minimize loss. After we have discussed the five criteria that make up our search criteria, we will discuss the money management aspect.
Once you have chosen a free insider trading site, your first rule is to only consider BUYS. This is because there’s a reason. There are many reasons why people sell shares, including college tuition, divorce, vacations, purchasing a house, and buying college tuition. There is one reason why people buy shares, and that is to make a profit and invest. We will only be considering the INSIDER BUYS that were made in the last 2 weeks as we intend to make a profit.
Second, only senior officers like CEO, CFO, EVP, etc. can make BUYS.
While directors and owners may have different goals for purchasing shares, senior officers work closely with the day-to-day operations of the company. Because they are on the front lines, they have an overall view of the business’s performance. Their rank is a sign of their importance.
This is subjective. However, we will apply a general rule of thumb for our purposes. Purchases that look like an investment or represent investment dollars should be considered.
A purchase of 30 shares for $9.00 isn’t what we consider a significant or serious investment. This is especially true for senior officers. A purchase of 1500 shares at $9.00 by the same officer is more significant and merits our attention. The minimum investment should not exceed $10,000, and it should contain at least one reasonable number of shares.
Fourth, you should only consider companies whose shares trade at least $5.00 per share on a major stock exchange. Avoid penny stocks. Any stock that trades below $5.00 per share is considered a penny stock. Sometimes, large companies may fall below $5.00 per shares but they still trade on major exchanges and the circumstances are usually extraordinary. Before you consider making an investment, wait until they have returned to $5.00.
The last but not least, you should only consider shares that trade near the place where insiders purchased them. The stock should be removed from the list if the insiders purchased shares at a price that is significantly lower than the current market. This is subjective, but 50% below the current market price would be considered substantially lower. However, it is acceptable to tolerate 15 to 20 percent. Be patient if you are searching for value.
After you’ve completed the fifth and last step, you should have at least two or three potential candidates for investment. This is not a part of the main criteria, but it will help narrow down the field and make the best investment decision. You can choose the stock that has the highest average daily volume if you have more than one choice. Daily volume is an indicator of liquidity. The more liquid a stock, the easier it is to buy and sell.
Don’t rush to make your investment now that you have made your decision. We were going to set up a money management system. No matter what investment system you use, this is a great idea. This money management strategy is easy and effective. Demonstrating the concept, I will use an imaginary company with symbol ABC that trades at $9 per share. Four days ago, an Executive Vice President of Marketing bought 2,000 shares for $8.15. We are willing to spend $9,000 on 1,000 shares. We prefer to split our investment into three tranches each of $3.000, so we don’t buy it all at once.
A first investment involves purchasing 333 shares at $9 each for a total cost of $2997.00, before commissions. A stop loss is immediately placed at 15% below the purchase price, or $7.65. If the stock price drops, a stop loss will allow you to exit. You can also make another purchase if stock price drops below $8.10 per shares or 10% from the original purchase price. For $2997.00, you will buy 370 shares at $8.10 each. You now have $5994.00 in capital and 703 shares trading at an average of $8.52. If the share price drops by 10% from your $8.52 average cost, which is $7.66, you can move your stop loss to $7.24. We lose the trade and it drops to $7.66. At that point, we purchase 391 shares and invest our last tranche for $2995.00.
You have $8989.00 invested in total and 1094 shares with an average price of $8.21. You now place a final stop loss of 15 percent at $8.21, or $6.98. If the stock trades below $8.21 or $6.98, your position will be canceled and you will be out. Don’t enter again. If you have experienced a 15% loss, but have enough capital to invest elsewhere, do not enter again. If the stock price does not reach your stop loss, but continues to rise, you can follow the weekly trend with a trailing 15% stop loss at the top of each week.
This simple strategy will allow you to maximize your profits and minimize your losses. This prevents you falling in love and allows for quick decisions. Because stocks tend to fall after an initial purchase, it allows you to plan your timing and protects your capital. It’s a wonderful tool.
Last note: For insider trading information, do a Google search and find the best and most user-friendly site. It will surprise you how quickly you can find a user-friendly site.
PrimeQuest Capital Corp.’s president and managing director is Ivan Cavric. He is also a managing consultant at Associated Financial Corp. Cavric has been involved in venture capital and start-up companies for over 20 years. Cavric served on several advisory boards for start-ups, public and private companies that provide management services and personnel during this time.
