Analysis of Insider Dip Buying Strategy Performance vs. S&P 500

Insider purchases during stock drawdowns (10-30% decline) significantly outperform the S&P 500 over a 12-month period, delivering 2-3x higher returns [2]. However, this strategy has a lower win rate (~60%) and higher volatility compared to the S&P 500 [2]. Investopedia highlights insider buying as a confidence signal but notes that signal reliability depends on factors like the insider’s role (executive vs. director) and the size of the purchase relative to their holdings [1]. Deeper drawdowns (20-30% vs.10-20%) correlate with higher subsequent returns [2].

1. Dip Depth Impact
   : Stocks with deeper drawdowns (20-30%) show higher returns when insiders buy the dip [2].
2. Risk-Return Trade-off
   : The strategy prioritizes upside potential over consistent wins, contrasting with the S&P 500’s stability [2].
3. Signal Quality
   : Not all insider buys are equal—executive purchases or larger transactions are more meaningful indicators [1].
4. Market Context
   : Insider buying during dips is widely recognized as a positive sign but requires careful evaluation [1].

• Volatility
  : Higher volatility than the S&P 500 may lead to larger short-term losses [2].
• Lower Win Rate
  : ~60% win rate compared to the S&P’s higher consistency [2].
• Information Gaps
  : Missing details from the original post-2008 study (sample size, sector breakdowns) limit verification [2].

• Outsized Returns
  : For risk-tolerant investors, deeper dips offer higher return potential [2].
• Confidence Signal
  : Validated insider buys can identify undervalued stocks [1].

• Performance
  : Insider dip buys (10-30% drawdowns) outperform S&P by 2-3x over 1 year [2].
• Risk Metrics
  : Lower win rate (~60%) and higher volatility than S&P [2].
• Signal Factors
  : Insider role, purchase size, and dip depth influence strategy effectiveness [1,2].
• Gaps
  : Original study details (sample size, sectors) are unavailable for independent validation.