The Securities Act of 1934 established many of the US rules for the securities market in the aftermath of the 1929 Stock Market Crash that ushered in The Great Depression. In particular, anyone who has attained a 5% stake or greater in a particular security was required to file Form 13D for official public disclosure. Material ownership of any significant size is important information for the investing public, since any changes of ownership to that degree could have a positive or negative effect on the market price, and thus give an unfair advantage to larger stockholders.
Insider buying or selling from management, board members or famous investors like Warren Buffett can indicate upcoming news events that would tangibly escalate or scuttle a stock’s market price. For those who already have an inside track on a company due to their currently large or accumulating holdings, adding to those positions are a bullish sign.
This post originally appeared at 24/7 Wall St.