What Is Insider Buying? How Company Executives Signal Confidence

Written by Guest Writer: Christopher Simpson

Not Sure Where to Start? Insider Buying Can Help

In a World with Information Overload, We All Need a Place to Start…

It’s no secret these days that the stock market is hot. From AI bottlenecks and energy funds to quantum computing that everyone and their brother is hoping will be their lottery ticket out of the rat-race. The problem (or one of them)? When you open your favorite finance websites like Yahoo! Finance, you’re hit with enough metrics and numbers it’ll make your head spin. You might start asking yourself

Where should I start?

Should I look at the PE ratio? The P/S ratio? Are sales declining or on the rise? What are analyst price targets for the stock?

Well, that depends on you.

One thing that you might want to look at isn’t going to be a specific “metric” or ratio, but something called “insider trading”, specifically “insider buying”.

Insider Buying?

When I was younger, I often associated insider trading with government officials or the type of corruption that makes you contemplate running for office yourself but… I think retail investors, like you and me, can get more out of it than meets the eye. It may not be so bad after all! Let’s look at it from a corporate perspective, when people who work for the business actually buy stock in the firm they work at. The definition of putting their money where their mouth is.

In his famous book One Up on Wall Street, renowned fund manager Peter Lynch gives some practical tips that investors can benefit from.

“If you see someone with a $45,000 annual salary buying $10,000 worth of stock [in the company they work for] you can be sure it’s a meaningful vote of confidence.”

This sounds good and all, but where can you find this sort of information? Thankfully, the Securities and Exchange Commission, the SEC, has our backs. Search for “[Company Name] Form 4”, you can see insider trading activity on Google. Just know that insider buying can also include stock grants to employees.

What About Insider Selling?

Now, you may be wondering:

If that’s the case, does that mean that insider selling is the opposite?

Well… not exactly. And Lynch touches on this as well; he discusses multiple reasons insiders might be selling their shares. It could be something as simple as “need[ing] the money to pay their children’s tuition.” I think insiders in Nvidia could pay for their children’s tuition many times over with the gains they’ve seen over the years! And SanDisk? They’d be more than fine… since they spun off from Western Digital in 2025 , those insiders have made a killing, more than enough to pay for their grandchildren’s college tuition…unless inflation keeps eating that away, too.

With multiple reasons they might be selling the stock, and it might be bearish, Lynch states “there’s only one reason that insiders buy: They think the stock price is undervalued and will eventually go up.”

When you think of it, insider buying makes total sense.

The Insider Advantage… Maybe It’s You!

Imagine you work in X industry at company ABC. You see a surge in demand, maybe you’re working more hours to fulfill this demand (well, that part might not sound so fun), the company is reporting higher margins, new customers, etc. Who would know this better than you, the very person working in this industry or business.

The thing is… insider buying isn’t the best signal either. There’s something else that you might want to know. And that “something else” is….

Cluster buying.

The More, the Merrier: Cluster Buying

What is cluster buying? It’s when multiple people who work at the company buy stock in clusters around the same time. This could be directors, C-suite executives, board members, etc. buy stake in their own company around the same time. It’s essentially a buffed-up version of insider buying.

If the CEO is buying the restaurant’s vanilla ice cream, he might just like the ice cream. But what if behind the CEO, the waiters, the cooks, and the busboys are all lining up to get some vanilla ice cream, too? It’s gotta be good, right? (or maybe the other flavors aren’t so good…)

On a practical level: They must know something that we don’t. Maybe we should take it as a good sign (at least we can hope… or we’ll all be out of luck.)

The Takeaway

Next time you’re on the fence about putting your hard-earned money into a certain stock and you’re not sure where to start… take a look at [company name] Form 4 and see who might be buying on the inside. Just remember, if the CEO is digging the vanilla ice cream, it’s probably a good sign…and if other people in the business are lining up behind him or her, take it as a bullish signal. While the market is a beast of its own, one of the best things we as investors can do is look at how people who work at the business are behaving. Are they putting their money where their mouth is? Are they too buying the vanilla ice cream they’re claiming is the best?

Recommended Reading

One Up on Wall Street by Peter Lynch

If you enjoyed learning about insider buying, One Up on Wall Street is one of the best investing books you can read. Peter Lynch explains why ordinary investors often have an advantage over Wall Street professionals and shares practical insights—like paying attention to insider buying—that are just as relevant today as when the book was first published. It’s approachable, filled with real-world examples, and a great next step for beginner and intermediate investors alike.

“Know what you own, and know why you own it.” — Peter Lynch

Disclosure: Some links in this article may be affiliate links, meaning Pathidon may earn a small commission at no extra cost to you.

About the Guest Author
This article was written by Christopher Simpson, an experienced investor and financial technology developer. He is currently building an AI-powered investing platform designed to help investors better understand the underlying fundamentals of stocks and ETFs.

Stefan Theron

Founder of Pathidon

Stefan holds a degree in Psychology and an MBA, and has spent years studying behavioral finance, market psychology, and the decision-making patterns that shape how people invest — bridging the gap between financial knowledge and human behavior.