Month: June 2022
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How to Interpret Insider Trading (Plus Examples)
Insider selling
Insider buying
Watch for
Big block purchasers
Examples of Insider Trading
- A lawyer representing the CEO of a company learns in a confidential meeting that the CEO is going to be indicted for accounting fraud the next day. The lawyer shorts 1,000 shares of the company because he knows that the stock price is going to go way down on news of the indictment.
- A board member of a company knows that a merger is going to be announced within the next day or so and that the company stock is likely to go way up. He buys 1,000 shares of the company stock in his mother’s name so he can make a profit using his insider knowledge without reporting the trade to the Securities and Exchange Commission and without news of the purchase going public.
- A high-level employee of a company overhears a meeting where the CFO is talking about how the company is going to be driven into bankruptcy as a result of severe financial problems. The employee knows that his friend owns shares of the company. The employee warns his friend that he needs to sell his shares right away.
- A government employee is aware that a new regulation is going to be passed that will significantly benefit an electricity company. The government employee secretly buys shares of the electricity company and then pushes for the regulation to go through as quickly as possible.
- A corporate officer learns of a confidential merger between his company and another lucrative business. Knowing that the merger will require the purchase of shares at a high price, the corporate officer buys the stock the day before the merger is going to go through.
- Bottom line
- Insider trading has many forms, and based on the historical evolution of those forms, insider trading will likely continue to evolve and surface in tomorrow’s business world.
- However, educating your company on the common ways insider trading scenarios occur can prove to be the most effective tool in preventing the tangible and intangible damages that come from insider trading
How to Evaluate High Technology Stocks
High technology is the last frontier in American business. Although these stocks have declined sharply during bear markets, they have outperformed other stocks, rebounding more sharply in subsequent recoveries.
Smaller companies developing new technologies, or making a breakthrough on an old one, have three things going for them.
These advantages:
Since they are small, the impact on their earnings from the new product or system can be significant.
They are generally free from government regulation because their earnings are often in a new field (except in the case of medicine, where the Food and Drug Administration reigns supreme).
READ ALSO: Spotting a Stock Market Decline Before It Starts
If the company scores a significant breakthrough, it has a chance to dominate a growing market. That’s an extremely profitable position even if the market served is relatively small.
Rules for the budding high-technology investor
Invest in a technology company only if you perceive it as serving a current social need. Some technologies are ahead of their time and are initially rejected. Example: When cable TV was introduced in the 1960s, it attracted hordes of investors but few subscribers. Today, there is a definite subscriber demand and cable TV is a far more attractive investment.
We recommend that you read this post on Spotting Low-Priced Stocks Ready to Bounce Back.
The high-technology expertise of the proposed company must be a meaningful part of the firm’s business. For instance, the largest contractor in electronic warfare is General Telephone and Electronics Corp. However, that technology accounts for a mere 1% of its earnings.
No matter how attractive a scientific breakthrough may seem, don’t buy a company operating at a deficit.
Ignore the market indexes: Companies with technological superiority are not tied to a stock market environment over time. Keep current on technological innovation. Read scientific papers, magazines, and investment guides that deal with technology.
What is the best way to invest in technology stocks?
The first option for investors is to purchase individual tech stocks, which they can do through a growing number of investment apps and platforms.
Individual tech stocks can also be purchased through traditional stockbrokers, though these are increasingly online and usually have their own apps. Charles Schwab, TD Ameritrade, and Interactive Brokers are among them.
READ ALSO: The Rules for Getting Out Stock Market Safely
The P/E ratio, P/B ratio, PEG ratio, and dividend yields are too narrowly focused to be used as a single measure of a stock. Combining these valuation methods yields a more accurate picture of a stock’s worth. Any of these, as well as more complex ratios like cash flow, can be influenced by creative accounting.
Bottom line
While no one can guarantee that big tech stocks will not experience volatility and dips, their long-term growth may outweigh any losses. Investors looking to diversify their portfolios should seriously consider including them in their asset mix. They provide returns that are unrivaled by any other type of stock.