How insider trading data helps navigate market volatility

Potential stock market volatility is a concern for 45% of retail investors, according to a recent FTSE Russell study. Amid volatility, it’s easy to get swept away by emotions like fear of missing out (FOMO). Retail investors have to navigate a rush of panic-based selling recommendations and “buy it now” stocks. However, they can find solace in a surprising area: insider trading data. While insider trading might seem like a dirty phrase, that’s not always the case. Analyzing public transaction data made by industry insiders is legal—and an excellent way to navigate volatile markets. The decision-making challenges facing retail investors The biggest challenge for retail investors during volatility is separating hype and fear from fact. When markets are volatile, retail investors often face conflicting recommendations. These can come from friends, family, financial influencers, and news outlets. Unfortunately, much of this “advice” may be based more on emotion and herd mentality. Investors may not know which recommendations to trust without access to high-quality data. This can lead to knee-jerk reactions. As a result, retail investors can make impulsive decisions they may regret later, like panic selling. Many people experienced this when they sold during the 2008 financial crisis. As the market recovered over the next few years, those who sold missed out. On the other hand, FOMO can lead to purchases that don’t match investors’ goals or live up to the hype. Look no further than the infamous GameStop surge in 2021 as an example. What investors need is insights based on solid data and an understanding of the market. This is where full-time professionals and financial institutions typically have the upper hand. Insider moves that signaled shifts in the market Professional and institutional investors often seem able to see the future and understand what’s actually going on in the markets. To illustrate this point, let’s look at a few instances where Warren Buffett via Berkshire Hathaway went against popular opinion and profited: He invested in AmEx in the 1960s despite the salad oil scandal. He then held the stock during the COVID-19 pandemic, when many investors sold. He purchased over 1 million GEICO shares in 1976 while the company faced possible bankruptcy. He invested heavily in Coca-Cola shortly after the market crash of 1987. These decisions resulted in impressive returns for Buffett. Still, he wouldn’t have made them if he had only used public opinion as an investment guide. That said, most retail investors can’t spend their days buried in research papers and financial reports like Buffett. They also don’t have the vast resources of institutional players. Without advanced research and entire analysis teams, they must turn elsewhere. The benefits of insider trading data for retail investors The good news is that retail investors don’t need teams of researchers to invest wisely. Instead, they can leverage AI tools to analyze public information on expert transactions to inform their decision-making strategy. Platforms like ours enable this strategy for retail investors by using AI to analyze publicly available data. They study trades made by insiders with extensive resources and generate investment recommendations. In other words, retail investors can assess the trades made by industry experts like Buffett, Vanguard, Fidelity, and BlackRock. The information becomes public as traders register transactions with the U.S. Securities and Exchange Commission (SEC). As such, learning from it is legal. Using AI and transactional data together is an excellent growth hack for retail investors. Using AI to get insights by analyzing insider trades is akin to the Burger King business strategy. Burger King knew McDonald’s was spending a lot of money researching the best places to open new locations. So, Burger King simply waited and built its new stores nearby. This way, Burger King benefitted from McDonald’s research without needing the same investment. In other words, work smarter—not harder. With the help of AI, individual investors can make decisions based on more sophisticated, data-driven strategies. They can sift through the noise and better navigate volatile markets. Clemen Chiang is CEO of Spiking.