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INVESTING WITH MILLIONAIRE INSIDERS

Tri Star Equity Research. INVESTING WITH MILLIONAIRE INSIDERS. AGENDA. Insider Qualifications and Motivations Rules for Insider Buying Methodology and Sample Characteristics Results Overall Based on Market Cap Based on Insider Type Based on Transaction Size UMI Study Limitations

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INVESTING WITH MILLIONAIRE INSIDERS

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  1. Tri Star Equity Research INVESTING WITH MILLIONAIRE INSIDERS

  2. AGENDA • Insider Qualifications and Motivations • Rules for Insider Buying • Methodology and Sample Characteristics • Results • Overall • Based on Market Cap • Based on Insider Type • Based on Transaction Size • UMI Study • Limitations • Conclusion & Questions TRI STAR EQUITY RESEARCH

  3. Insider Qualifications and Motivations • SEC: “in a position to have privileged non-public material information on a publicly listed firm.” - Officer (CEO, CFO, COO, Board Members) - Director (VP) - 10% shareholder • Motivation: create shareholder value • SELL reasons vs. BUY reasons TRI STAR EQUITY RESEARCH

  4. Rules for Insider Buying • Insider trades based on material non-public info fraud(violation of fiduciary duty to shareholders) • Section 16(b) of the Security Exchange Act of 1934 • Form 4 reported SEC within 2 business days • Illegal to Buy & Sell within 6 months • To sell insider must own security TRI STAR EQUITY RESEARCH

  5. Methodology • Market: all stocks listed in USA (under SEC) • Sample time frame: Oct 1 to Nov 30 2007 • Event: $1M + insider buy • Data source: Form 4 from j3sg.com (3x day) TRI STAR EQUITY RESEARCH

  6. Sample characteristics • 204 transactions • 4,4 transactions/day TRI STAR EQUITY RESEARCH

  7. Risk Adjusted Returns • Identifiy historical Betas • R – β*Rm = α + ε • Projected in 2 time frames: • 2 months after report • 4 months after report TRI STAR EQUITY RESEARCH

  8. Results: Overall TRI STAR EQUITY RESEARCH

  9. Results: Insider Type TRI STAR EQUITY RESEARCH

  10. Results: Market Cap TRI STAR EQUITY RESEARCH

  11. Results: Transaction Size TRI STAR EQUITY RESEARCH

  12. UMI Study (2003) • Nejat Seyhun, professor of Finance at the University of Michigan • Time frame: 1975 to 1995 • Historic (vs actual) • Sample random transactions • All sizes of transactions TRI STAR EQUITY RESEARCH

  13. UMI Study: Results TRI STAR EQUITY RESEARCH

  14. UMI Study: Results TRI STAR EQUITY RESEARCH

  15. UMI Study: Results TRI STAR EQUITY RESEARCH

  16. UMI Study: Results TRI STAR EQUITY RESEARCH

  17. Limitations • Relative short time frame to complete research = 2 month population • Performance time period (2&4 mo) • Particular market conditions (bear) • Some outstanding firms less than 60 months old TRI STAR EQUITY RESEARCH

  18. Conclusion • Sample outperforms the market • 10% SH > Directors > Officers • MED cap > SML cap > LRG cap - However Russ2k > SML cap • Transactions: MED > SML > LRG • UMI study confirms overall results TRI STAR EQUITY RESEARCH

  19. Questions TRI STAR EQUITY RESEARCH

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