As an indicator of stock market health, which indicator should you look at? Confidential buying or sales of confidentiality?

Investors who follow the trade of management can perceive the last transaction patterns as a clear signal Loop us. While the recent data show that corporate directors were selling much more than they bought in June 2025, this pattern is actually normal and much less significant than most investors are aware.

The reason is simple: The management sells its shares in the company For dozens of personal reasons – from tax planning to the purchase of a house – but they usually buy only for one reason: they believe that the price of the shares will increase.

How can trade in information can signal market trends

When a high -performance employee buys or sells shares in the company for which they work, it is tempting to read between lines. These people are initiated to information to which the average investor has no access.

Federal law requires that directors and main shareholders (people with over 10% of the company’s shares) be traded only on the basis of public information, and not Confidential secrets This can affect share prices. This is to prevent unfair advantages and, theoretically, make it difficult to buy and sell activity.

Of course, this does not stop experienced investors from trying to read tea leaves. Many believe that management find creative ways to signal their true feelings about the perspectives of their company, thanks to which their commercial patterns worth watching – even if the law claims that they should not have any special advantage.

Confidential buying vs. Sale of confidential information

There are analysts from Wall Street who argues that investors should pay more attention Buying confidential than sales. Sales, theory, is more difficult for interpretation as a bear sign, because it is often resolved or caused by direct needs, such as property and tax planning, diversification of personal wealth or financing of large expenses, and there is a lack of trust.

As the famous investor Peter Lynch once said: “Weighs can sell their shares for any reasons, but they only buy them for one: they think the price will increase.” This observation helps to explain why there is usually much more sales than buying.

When information transactions matter

Treat trade in information as one piece of a larger puzzle, not crystal clear purchase or sale signals. Studies consistently show that although confidential shopping can predict stock efficiency, the effect is not magic – this is modest and requires careful interpretation.

A classic study conducted by scientists from the University of Illinois Josef Lakonishok and Inmoo Lee showed that confidential sales of confidential, but the difference is about 4.8% per year – which means that this is not a guarantee of wealth. More importantly, their studies have shown that sales of confidential ones seem to have no predictive abilities, while all collected information is mainly from shopping.

Newer research with Journal of Banking & Finance He adds a fascinating wrinkle: outside people often trade in the opposite direction of the recommendation of analysts. When analysts reduce reserves, the purchase of confidentials actually increases significantly. This contradictory behavior suggests that management use their excellent knowledge not to agree with negative market moods, buying when others are pessimistic. The study showed that inventory from Buying confidentiality after the reduction of analysts Experience much higher phrases, proving that instincts are often paid off.

Lower line

Next time you see Director Buyer or Seller SharesThink before you tempt you to act. Yes, these transactions may sometimes suggest Actions are insufficient or overstated. However, in most cases they are routine and under the influence of other factors.