When I joined the Outsider Club just over two years ago, the market was in a state of uncertainty.
COVID was still raging, "transitory" inflation was soaring, and little by little the market was churning lower.
Despite all that, I decided to keep trading.
But I wasn't shooting blindly into the dark.
I was trading alongside the richest and most powerful people on the planet.
That's company insiders, Congress members, and institutions.
By mimicking the trades of these influential market movers, I was able to eke out gains one by one.
Now, not every trade was a winner, but that's to be expected, as irrational investors can take down even the best stocks.
And this year, after hitting a bit of a rough patch with this interest rate mess, our bets are finally starting to pay off.
We've cashed out five double-digit gains so far this year, some in just a few days. And we've got more on deck.
How did we do this?
I'll show you.
And if you're lucky, I might even throw in a free pick at the end...
It starts with three key forms: the Form 4, Form 13F, and political disclosure form.
Today, I'm only going to cover the Form 4. I'll cover the rest another time soon.
The SEC Form 4: Statement of Changes of Beneficial Ownership of Securities was created during the Great Depression to curb company insiders' ability to unfairly profit in the stock market from nonpublic information.
The form remains one of the best ways to understand how people in management feel about the future prospects of the company they work for. This document is the first step in determining the strengths and weaknesses of a company from the inside.
Because not all insider activity is meaningful to stock price movements, it's important to determine what the transaction codes represent and the impact they can have on the stock.
If you're not an insider (a C-level executive, director, or 10% owner of a company), you've probably never even seen a Form 4.
The Form 4 document must be filed electronically via the commission's Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) at SEC.gov within two days of when an insider makes a move within their own company's stock. Upon the form's filing, it becomes public record.
Insider buying and selling is different from insider trading, which is illegal and comes with a maximum sentence of 20 years in prison and a maximum fine of $5 million. But don't worry, that's not what we're tracking. We're looking at public records, so everything we trade on is legal.
The SEC keeps track of all Form 4 filings.
Luckily for us, we can see every move the insiders make.
Just go to SEC.gov, type in the name of the company you want to find, and click "Ownership Disclosures" under the "Selected Filings" section. There you'll be able to view all insider transactions.
Let's dive into an actual Form 4 from someone you may recognize...
Here's a breakdown of the important sections:
Section 1 Name of the owner of the sharesSection 2 Company name and ticker symbolSection 3 Transaction dateSection 5 Relationship of the share owner to the companyTable ITitle of securityTransaction dateTransaction codeSecurities acquired (A) or disposed of (D)Number of shares owned following the transactionsIt's a fun exercise to research the person buying shares. Look into their job background and any connections they have in the industry. It's a good sign when you see multiple C-suite executives buying at the same time, also called cluster buying. This means the insiders feel good about the financial strength of the company.
The section you'll want to pay close attention to is Table I, which outlines the buying and selling of securities. This will indicate what type of security is being transacted, including common stock, convertible preferred, employee stock options, etc.