Alpha Buying: When the Market Misses, Insider Buys Leave a Trail

One of the most persistent myths in investing is that markets are perfectly efficient, pricing in all known information at every moment.

I have never bought into that theory. In fact, some of the best returns I have ever seen came from exploiting the exact kinds of inefficiencies that the academics swore should not exist. A new study from academia adds another strong data point to the idea that markets need a little help from the people who actually know something.

That help, it turns out, often comes from insiders.

The researchers took a deep dive into insider trading activity and what it actually signals about future stock performance. They found that insider trading increases market efficiency by correcting mispricing.

That last part is key.

 It is not just about buying and selling. It is about helping the market close the gap between price and value. When insiders act on information that is not yet fully reflected in the market, they nudge prices in the right direction.

Here is where it gets interesting.

The strongest predictive power comes from trades that are not preplanned. Most executives today sell shares through 10b5-1 plans that allow them to diversify their holdings without raising eyebrows. These trades are predictable and have little to do with the company’s outlook. But when an insider steps in outside of a preset plan and buys stock with their own money, unhedged and unprotected, that is a real signal.

 The research shows these opportunistic trades actually correlate with future fundamentals.

Even more fascinating is how this plays out across the valuation spectrum. When insiders sell shares in companies that are overpriced (based on indicators like high levels of share issuance), the market tends to react quickly. The stock pulls back, and the price gets closer to where it probably should be.

 On the flip side, when insiders buy stock in a company that is underpriced, it often takes up to a year for the market to catch up. That time lag may frustrate momentum traders, but it is a gold mine for patient value investors.

The study also introduces the idea of “Composite Share Issuance,” or CSI, as a tool to assess whether a company is over or undervalued. High CSI is a red flag. Low CSI, especially when paired with insider buying, is a sign that something is trading below its true worth.

The presence of informed insider buying, particularly when combined with low issuance, is about as good a clue as you are going to get in public markets.

Now, let us be clear. Insider trading is not a magic wand. These trades only explain a small portion of future firm fundamentals. But that portion is meaningful, and it consistently points to mispriced securities. Markets are not perfectly efficient. They are only as good as the people participating in them. And the people who know the most (those running the companies) do not often speak through press releases. They speak with their wallets.

For those of us who build watchlists based on deep value metrics, Piotroski scores, or PEG ratios, insider trading remains one of the few real-time tells in this game. You just have to know where to look. It is not about raw volume. It is about motive.

Unplanned insider buying in undervalued names is not just a data point. It is a clue. And when you combine that with strong fundamentals and a patient outlook, you have an edge the market still has not figured out how to fully erase.

You will not hear this from the efficient market crowd. But those of us who still do the work know better.

As I mentioned earlier, the most valuable insider trades are not the ones filed under routine diversification plans. They are the ones that show conviction: unhedged, open-market purchases by executives and large shareholders who already know the business inside and out. When those insiders step in during periods of price weakness, and when the company has a history of conservative capital management, you have a situation that deserves attention.

Here are three stocks that have seen recent opportunistic insider buying and are deeply undervalued. Patient aggressive investors could see massive long-term gains by joining the insiders and purchasing shares.

F&G Annuities & Life FG

F&G Annuities & Life is a business built for the long haul. The company focuses on life insurance and fixed indexed annuities, with a stable stream of premium income supported by the long-duration nature of its contracts. With Fidelity National Financial as its parent and interest rates remaining favorable, FG’s portfolio is producing attractive investment spreads. While the company is not a growth story by any stretch, it is generating reliable cash flows and sits in a solid capital position. Analysts have pegged fair value around $43, which suggests nearly 40 percent upside from current levels. The stock is not likely to make headlines, but it offers yield and downside protection for patient investors. It is a classic case of a business that works just fine, only the market has not noticed yet.

Civitas Resources CIVI

Civitas Resources, by contrast, is the high-risk, high-reward opportunity in this group. Shares have been cut in half over the past year, battered by commodity volatility and headline-driven sentiment around Colorado’s ESG policies. Yet the underlying business tells a different story. The company is expected to produce more than $1 billion in free cash flow this year, trades at less than six times earnings, and holds manageable levels of debt. Management has taken aggressive steps to streamline operations, including layoffs and asset rationalization, with an eye toward focusing more deeply on Permian Basin assets. The market is pricing in a lot of pessimism, but if oil prices firm and execution remains disciplined, CIVI could be a very attractive turnaround in the making.

Global Indemnity Group GBLI

Finally, Global Indemnity Group is one of those small insurers that quietly delivers, quarter after quarter. The company focuses on small commercial and program insurance, and while recent catastrophe losses led to a modest net loss in the first quarter, GBLI’s long-term fundamentals remain intact. Revenue declined in 2024, but net income actually grew by more than 70 percent thanks to underwriting discipline and investment income. The company has returned over 60 percent to shareholders in the past five years and currently yields close to 4 percent. With its new “Project Manifest” strategy aimed at refocusing on core business and improving margins, GBLI offers a rare combination of value, yield, and operational simplicity.

None of these names are crowd favorites. That is precisely the point. Each of them sits in an unloved corner of the market, offering patient investors a chance to buy real businesses at what I believe are discounted prices. Whether it is the dependable cash flows of FG, the distressed upside of CIVI, or the quiet consistency of GBLI, these stocks all fit the mold of value opportunities waiting to be realized.