🌱How to Start: What is Insider Buying and Why Does it Matter

What It's All About

Every publicly traded American company has its insiders — directors, CFOs, board members, and major shareholders. When these individuals buy or sell shares of their own company, they are legally required to report it to the U.S. regulator SEC using a Form 4. These forms are public. This allows even a regular investor to see what people who know the company from the inside are doing.

The idea is simple: a company director knows more about their company than anyone outside. When they buy shares with their own money, they signal their belief in a better future. This is called conviction — a belief backed by personal funds.

But beware — not every "purchase" on Form 4 is a real purchase. And that's where the art lies.

P-Code vs. Others: The One Thing to Remember

Every transaction on Form 4 has a letter code. For beginners, one is key:

• P = open-market purchase. The insider reached into their own pocket and bought shares at market price. This is a signal of true conviction.
• S = sale.
• A, M, F, G = grants, option exercises, gifts, tax adjustments. These "purchases" were not paid for out of the insider's pocket — they received shares as part of compensation. They are not a signal of conviction.

The most common beginner's trap: seeing a large number under "purchase," getting excited — and overlooking that it was just an option exercise (code M), a standard form of compensation, not real conviction. The QMA strategy therefore only considers the P-code.