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Insider buying a challenge

Pratap Ravindran

PUNE, Nov. 6

THERE are times when it seems that the Securities and Exchange Board of India (SEBI) just can't win. The market regulator, which is making valiant efforts to curb insider trading in a securities market in which very little trading of any other kind takes place, has, in the amended SEBI Act, stipulated that no person should directly or indirectly employ any device, scheme or artifice to defraud in connection with the issue of or dealing in securities which are listed or proposed to be listed in a recognised stock exchange.

The bureaucrats at SEBI probably believe that the amendment covers it all. But what about securities investments based on the premise that companies with strong numbers and a high level of insider trading usually represent a pretty good bet? You can't possibly prosecute an investor for putting money in a company the securities of which, he or she believes, are traded heavily by insiders...

Punters in India, much like SEBI, look to the West for ideas. And, like SEBI which is piggybacking on the US Securities and Exchange Commission SEC), some local dealer in securities, sooner than later, is going to try and replicate the US-based insiderselections.com investment model in India.

This is what how the American dotcom so charmingly describes its investment philosophy on its home page: "If insiders are buying stock, shouldn't you be buying? Insiderselections.com tries to identify companies with sound fundamentals and significant insider trading. Since corporate "insiders" (CEO, CFO, Officer, Director) know more about the company's business prospects than anyone on the outside looking in, we feel heavy insider buying is a highly significant leading indicator.

"Our research shows that sound companies with widespread insider buying tend to outperform the market by a substantial margin. That is why we really believe that following the insiders' path can lead you to enormous profits in the stock market.

"Every week one rock solid stock recommendation!

"Of course not every insider purchase results in big gains. Insiderselections.com tracks insider buying of every company in the US. We look at both the quality and quantity of the insider buying and recommend every week just one stock, which in our opinion has had the most significant insider trading. Our selections will come from various industries and different risk categories. We will pick rather low-risk stocks from traditional sectors as well as more speculative stocks from the telecom, Internet or biotech industry. Our performance shows the success of our stock picking methodology. Our selections could outperform the market by a substantial margin. Thirteen recommendations rose more than 50 per cent, six of them even more than 100 per cent!

"Sign up now - Get our latest issue instantly.

"Sign up now and you will get each Sunday a new issue of our report. You will have instant access to our latest issue as well as to all our previous weeks' issues via our archives. Sign up now!"

It's back to the... SEC drawing board for SEBI!

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