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Chapter 13. Follow the Experts > Crunching the Numbers

Crunching the Numbers

Before you decide to follow the experts and buy stocks after insiders buy and analysts issue buy recommendations, you should take a look at differences across the market and get a sense of how much stock insiders hold at individual companies, how often they trade, what types of companies are most followed by analysts, and the nature of analyst recommendations. In this section, you will look at cross sectional differences in insider trading and analyst following.

Insider Trading

Using the SEC definition of an insider as a director, manager or employee of the firm, you can compute the percent of stock held in a company by insiders. In companies like Microsoft and Oracle, in which the founders still play a role in management and have substantial holdings, you will find insider holdings to be a high percent of the outstanding stock. In Oracle, for instance, Larry Ellison owned in excess of 20% of the outstanding stock of the company in April 2003. In more mature companies that have been in existence for a while, in sider holdings are much smaller. In Figure 13.4, you can see the distribution of insider holdings as a percent of outstanding stock across companies in the United States in April 2003.


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