Investors may not buy the sugar coating, but sometimes, after bad news, insiders buy up stock, presumably because they think it’s undervalued and a good investment after a price dip, and, in the back (or front) of their minds, believe there’s an added benefit of signaling their bullishness to the market. Last month, the WSJ looked at how these purchases impact stock prices in the short and long term.

To find out how often these insiders get it right, we analyzed about 1,400 publicly disclosed insider purchases at S&P 500 companies over the past five years. Since 2020, insiders at 327 of them have spent a collective $3.7 billion on stock purchases of more than $100,000 each, according to data from financial research firm Verity.

Most purchases took place after the share price had declined over the previous 30 days, often after disappointing results or other negative news. In such instances, executives and directors often buy shares in clusters to amplify their vote of confidence in the strategy—as they did in a quarter of the trades analyzed, according to the Verity data.

They found that, “The move generally works—to a point.”

Share prices climbed a median 2% a month after the insider purchases, but their recoveries tended to taper off after that. Just 15% fully rebounded from where they had fallen in the 30 days before the share purchase. “It sort of wears off,” said Ben Silverman, Verity’s head of research, of the bullish signal that insider purchases send to the market [. . .] About 60% of trades made some money, but not all fully erased previous declines.

So if your insiders want to buy your stock because they think it’s a good investment – and you have an open window, no MNPI, etc. – great. But if they’re doing it in the hopes of having a long-term positive impact on the stock price, know that it often doesn’t play out that way.

– Meredith Ervine