Has anyone had success in finding alpha with any of the Insider factors or formulas? Maybe I’m using the wrong timeframe or formula, but it’s the one factor that’s eluded me. Welcome any suggestions.
I’ve been using, to a small degree, InsiderBuySh1M(0)/SharesQ, InsiderUniqBuy3M(0), and Insider%Own.
Yes, I agree that there aren’t many inside nodes I have added that collectively provide a better result.
I also think it would be interesting to have a function (a node) around ownership, as there are several academic studies showing that Founder-led companies perform well. I am discussing it here:
Summary:
- A 2010 study performed by Joel Shulman of Babson College and published in the Journal of Risk and Financial Management found that the equity performance of founder-led public companies significantly outperformed benchmarks from 1998 to 2010. The study also found that founder-led businesses dominated their peers in risk and return metrics, including rate of return, sharpe ratio, sortino ratio, alpha, active premium, information ratio, and up capture ratio4.
- In 2006, 26 Fortune 500 companies boasted founder-CEOs. The stocks of these 26 companies returned an average of 18.5% percent annually from 1995 to 2005. Their profit growth was also superior, increasing an average of 19.6% percent, vs. 11.7% for the Fortune 500.5
- A 2007 study concluded, “An equal-weighted strategy that invested in firms where the founder served as CEO from 1993 to 2002 earned an abnormal return of 4.4% annually in excess of the market”6
- In 2009, Fortune’s editorial staff considered 12 candidates as best CEOs of the decade, and “not a single one of the 12 was hired to run a company by its board of directors.” In other words, they were what we consider founders.7
- Founder-led companies on average have grown revenue faster than their peers over the last 5 years,8 and have 31% more patents.9
- A 2010 University of Pennsylvania study showed that small-cap company founder CEOs consistently beat professional CEOs on a broad range of metrics, including return on investment.10
- Finally, in one of the most comprehensive studies on the subject, Bain and Company found that over a 25-year period from 1990 to 2014, founder-led public companies performed 4 times better than all other public companies over that time period.1
Anyway, here is my insider rankfolder:
<Composite Name="insider " Weight="33.33" RankType="Higher">
<StockFormula Weight="0" RankType="Higher" Name="InsBuyTrans >= 3 // there were at least 3 insider " Description="" Scope="Universe">
<Formula>InsBuyTrans</Formula>
</StockFormula>
<StockFormula Weight="0" RankType="Higher" Name="InsNetTrans >= 3 // the number of insider insider " Description="" Scope="Universe">
<Formula>InsNetTrans</Formula>
</StockFormula>
<StockFormula Weight="0" RankType="Higher" Name="InsOwnerSh% >= 25 And InsOwnerSh% <= 75 // inside" Description="" Scope="Universe">
<Formula>InsOwnerSh%</Formula>
</StockFormula>
</Composite>
Quoting from the Trello board, “in progress” section:
Currently insider factor like “Insider Buy Transactions” are provided by our data vendor and can be misleading since they include awards and option exercises.
We will be doing our own calculations and provide new factors that measure real insider open market purchases.
Marco Salerno added this card…
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Thanks everyone, I appreciate the feedback.
Yeah I don’t like the way the aggregate insider factors are calculated. I forget which one I looked at, but it was a joke once you examined each transaction.
Unless awards and options are given in lieu of salary… but that only happens with startups to preserve cash. If anything we should create a new factor called InsiderGift, or something. Insiders get fat salaries, options, and golden parachutes too. Didn’t Twitter ex-ceo get like $200M to leave, and all he did is take it to the brink of BK ?
Don’t believe me? Look at this bullshit that was going on at Twitter. Wow. What a scam
So yeah, we need to redo them by looking at each transaction individually.
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Maybe the new factor “awards” should be called InsiderSteals
Maybe change the name from “InsiderGift” to “InsiderGrift”. 
I think we’re onto something. We need a good name!
EntitledAwards?
OscarAwards since many insiders are just actors ?
PS. I tried watching the “Best Picture” of 2022… nonsense everywhere… had to turn it off.
And here’s twitter racket destroying investor’s equity a little every year.
I need to look at the data again. Perhaps there are two kinds: if the option price is above closing price it’s an InsiderIncentive, if below it’s an InsiderSteal of Grift. And then there are the legit buys…
So yeah , something like three factors to replace “InsiderBuys”
Hi all, I wanted to share an observation regarding insider buys I’ve come upon. First, I agree as a traditional ranking factor it’s a throwaway for me, BUT … I was working on something today that involved looking at stocks that were down / underperformed but otherwise scored well on the ranking system.
I wanted to restrict the screen to stocks that were underperforming but had a positive insider profile, and using insider activity as a screen constraint (rather than putting it in the ranking system) improved performance noticeably. Stock down and insiders selling performed worse than stock down and insiders buying. I’m early in the process, but initial results put about 2-3pp annual performance improvement which raises my eyebrows.
This runs counter to my normal process of trying to put all of the factors inside the ranking system, but might be a way to utilize the info. The problem with using factors in the screen rule is you lose any stock that doesn’t pass the constraint, but in some scenarios it may make sense.
I’ve also had decent results from InsiderBuySh1M(0)/SharesQ and Insider%Own, both higher better.