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

This analysis synthesizes findings from a Reddit post [1] on insider dip buying and external studies [2][3][4] to evaluate the strategy’s performance relative to the S&P500. A 2021 Elon University study covering 2010-2019 found that insider purchases (not limited to dips) generated a mean 1-year return of 49.08%—12.43% higher than the S&P500’s36.65%—but with 52.25% volatility (7x the S&P500’s7.06%) [2]. The recent S&P500 1-year return (12.91% as of 2025) is lower than the long-term mean for insider buying, highlighting potential upside [10]. Recent trends (2025) show corporate insiders buying the dip at the fastest pace since May amid the S&P500’s worst November since2008 [4], aligning with the Reddit post’s claim that deeper dips correlate with higher returns [1]. General market dip buying in2025 has also delivered strong results, with the S&P500 averaging2.5% one-week returns after2%+ drops [3].

1. Risk-Return Tradeoff
   : Insider buying strategies offer superior upside but require tolerance for extreme volatility—critical for investors to balance potential gains against loss risk.
2. Timing Alignment
   : Current insider buying activity [4] suggests a market signal that valuations may be attractive, though the strategy’s performance in prolonged bear markets (e.g.,2008) remains a concern.
3. Data Gaps
   : Limited post-2020 studies focus specifically on dip-related insider purchases [1], and no quantitative data confirms the Reddit post’s claim of lower win rates for the strategy [1].

• Volatility
  :7x higher than the S&P500, making the strategy unsuitable for risk-averse investors [2].
• Market Cycle Sensitivity
  : Performance may decline in prolonged bear markets (e.g.,2008 general dip buying losses) [2].
• Insider Motivation
  : Purchases may reflect tax or portfolio rebalancing needs rather than positive fundamentals [2].

• Current Signal
  : Recent insider dip buying trends [4] indicate potential undervaluation in select stocks.
• Dip Depth Correlation
  : Deeper dips correlate with higher returns, per the Reddit post [1], offering targeted entry points for risk-tolerant investors.

• Historical Returns
  : Insider purchases (2010-2019):49.08% mean 1-year return vs. S&P500’s36.65% [2].
• Volatility
  : Insider strategy:52.25% vs. S&P500:7.06% [2].
• 2025 Trends
  : Insiders buying dip at fastest pace since May; S&P500 dip buying delivers2.5% average one-week returns [3][4].
• Recent S&P500 Return
  :12.91% over 1 year (2024-2025) [10].
• Data Gaps
  : Need post-2020 dip-specific studies and win rate data to validate the strategy [1].

This section provides objective context for decision-making without prescriptive recommendations.