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Q: Aside from company filings, SECWatch also tracks insider buying trends. Why is this important and how does it impact the average investor?

SECWatch: It turns out that historically insider selling has never meant a stock will go down in price (over the long term). I rationalize this historic data with the idea that insiders want to diversify their holdings. If I was a founder at Google and held $10 billion in Google stock, it is natural for me to sell some of these shares and place them in other assets to diversify my investments. This doesn’t necessarily mean Google stock will go down in price. On the other hand, historically, companies with strong insider buying have been shown to beat the S&P 500 in performance. Personally, it makes me feel good to see executives with skin in the game. If the company does poorly, their investment loses value and they aren’t only rewarded for the upside (opposed to option grants).

Chris Versace is director of research at Think 20/20 LLC, an independent research and corporate access firm based in Reston. He can be reached at cversace@washingtontimes.com. At the time of publication, Mr. Versace had no positions in companies mentioned. However, positions can change.