“The Weismann Secret — $24 Million in Profits”

By Travis Johnson, Stock Gumshoe, January 31, 2008

This teaser email comes in from the folks at the Oxford Club, who are selling what sounds like a new service from Alexander Green called the Insider Alert. It normally sells for $2,900, they tell us, but is currently available for $1,011.

This service tracks insider buying, as do so many others, and tries to tell you which stocks you should buy based on the buying and selling behavior of corporate officers and other insiders.

The letter would have you believe that Fred Weissmann discovered this secret, whoever he is, and that it led him to riches. I have no idea whether or not that’s true, I haven’t ever read anything about the guy. That’s generally immaterial to the point here, though.

The basic concept is teased fairly heavily, with quotes from some investing luminaries — including Peter Lynch, who is quoted as saying that “there is no better tip-off to the probable success of a stock.”

And Mark Hulbert is quoted as follows: “Investors can safely ignore the consensus and rely on [the Weismann Secret] alone.”

While that’s an accurate quote, except for the “Weismann” bit”, it doesn’t tell you much.
Here, from the same NY Times column as they’re quoting from, is a more explanatory quote from Mark Hulbert quoting research that was based on the decade leading up to 2003: “this means that when insiders are bullish, the consensus of Wall Street’s analysts is largely irrelevant to how a stock performs over the next year. In such cases, investors can safely ignore that consensus and rely on the insiders’ behavior alone.”

And one of the leading scholars of insider trading is quoted as well, saying that “Insider buying activity signals greater-than-average stock price increase.” The teaser indicates that this was published by the University of Michigan, but it was actually in a book from MIT Press entitled Investment Intelligence from Insider Trading, by Hasan Nejat Seyhun. To be fair, Seyhun is (or was, haven’t checked lately) a University of Michigan faculty member.

So they’ve established that they’re essentially selling a service based on some well-known trends about insider buying and the impact that has on stock prices over time.

But they also put in a bit about the “de-classification of inside information,” referencing the SEC filings that are published monthly that share insider trading activity, and the actual form (Form 4) that is submitted to the SEC. Nowadays, of course, the Form 4 is available to the public as soon as it’s filed, through Edgar and, subsequently, through literally dozens (at least) of other websites and services that follow this data. It’s federal government information and thus public and non-copyrightable, so anyone who thinks they can add something can republish it however they like.

So what else are they selling us? It’s really a decisionmaking process — how to decide which insiders you should be following.

Most of the things that are part of this special analytical approach are actually just proven academic theories on insider trading.

The things that go into what he calls “Insider Profit Analytics” are

  1. Insider buying, not selling.
  2. Significant buying. (relatively large amounts of stock)
  3. Insider buyers who have successful track records.
  4. Insider buying clusters. (multiple purchases by insiders)
  5. Insider buying