🌱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.

Why CEO and CFO Purchases

Not all insiders are equal. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have the best overview of the company's real state — contracts, margins, and risks. When they buy with their own money, it is historically a stronger signal than a purchase by a regular board member.

QMA therefore weights purchases according to hierarchy — a purchase by the CEO or CFO carries more weight in the evaluation than a purchase by a less informed insider.

Three Simple Principles for Beginners

1. Only follow the P-code. Ignore grants, options, and gifts as "purchases." Only a real purchase with personal money carries information.
2. Look at the position in the hierarchy. A purchase by the CEO or CFO historically means more than a purchase by someone on the periphery.
3. Measure size relative to the company, not in absolute dollars. A $5 million purchase in a $200 million company is a huge commitment (2.5% of the entire company). The same $5 million in a $500 billion company is noise. Always measure the purchase size relative to the company size.

How to Read the Insider Monitoring Page in QMA

On the Insider Monitoring page, QMA collects Form 4 data and pre-processes it so the signal is readable:

• P-code filter — the platform distinguishes real purchases from grants and options, so you don't have to manually decipher codes.
• Insider hierarchy — you can see whether the purchase was made by the CEO, CFO, or someone less significant.
• Cluster — if multiple insiders are buying at once, the platform highlights it (a stronger signal than a lone buyer).
• ICS — Insider Conviction Score (0–100) — a composite score that combines hierarchy, cluster timing, quality of real money invested, purchase purity (whether someone is selling simultaneously), and price proximity. The higher it is, the stronger the conviction it describes.
• Win Rate panel — a live overview of the historical success of ICS signals based on backtests.

Use the page as a gateway for study, not as a list of instructions. QMA describes what insiders are doing and how strong the signal has historically been — the decision remains yours.

Summary

• Insiders must report purchases and sales of their own company's shares via Form 4 (public).
• Only P-code = real purchase with personal money = conviction. Ignore grants, options, and gifts (A/M/F/G).
• Purchases by CEO and CFO have historically the greatest informational value.
• Always measure the purchase size relative to the company size, not in absolute dollars.
• The Insider Monitoring page in QMA automates these principles and summarizes them into the ICS score.

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Past performance is not indicative of future results. This text is educational and analytical — it is not an investment recommendation.