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Chapter 13. Follow the Experts > More to the Story

More to the Story

What can go wrong when you follow the experts? There are many potential problems, but this section focuses on the most important problems with each of the three screens you looked at in the last section: insider trades, estimate revisions and analysts recommendations.

Following Insiders: Timing Is Everything

If insider trading offers advance warning, albeit a noisy one, of future price movements, can outside investors use this information to make better investment decisions? In other words, when you are looking for stocks to buy, should you consider the magnitude of insider buying and selling on the stock? To answer this question, you first have to recognize that since the SEC does not require an immediate filing of insider trades, investors will find out about insider trading on a stock with a delay of a few weeks or even a few months. In fact, until recently, it was difficult for an investor to access the public filings on insider trading. Since these filings have been put online in recent years, this information on insider trading has become available to more and more investors.


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