When you invest in small-cap stocks, you quickly learn that information is uneven. Some companies have limited analyst coverage. Liquidity is thinner. Price moves can be sharper. In that environment, insider buying gets a lot of attention because it feels like one of the few “real” signals you can trust.
Sometimes it is.
But just as often, insider buying is misunderstood. Investors see a Form 4 filing and assume it means a stock is about to take off. That is not a process. It is a headline reaction. We explored the dynamic between process and reaction in more detail in our review of what worked in 2025, which showed that discipline mattered more than market narratives.
In this post, we will keep it simple: what insider buying can tell you, what it usually does not tell you, and how our Insider Scorecard helps us separate higher-quality signals from noise.
What “insider buying” actually is
Insiders are people like the CEO, CFO, directors, and major owners. When they buy shares, the transaction is disclosed through a filing (often a Form 4). The appeal is obvious: these people know the business better than anyone.
However, insiders buy for different reasons, and not every “buy” is a true vote of confidence. The key is to judge the quality of the buying, not just the fact that it happened.
When insider buying is mostly noise
A lot of insider buying looks bullish in a news headline but does not carry much informational value.
One common example is a small purchase that is not meaningful for the insider. A $10,000 buy might be sincere, but it can also be symbolic. Without context, you cannot tell.
Another issue is one-time buying. A single purchase might reflect timing or sentiment, but it is weaker than a pattern.
Finally, small-caps add an extra complication: dilution. In small-cap stocks, insider buying is most meaningful when paired with profitability and internal cash generation, because those factors reduce reliance on external financing.
If a company is issuing new shares, that can overwhelm the bullish message of an insider buy. In other words, insiders can be buying while shareholders are still losing ground on an ownership-per-share basis.
A practical example
With BUKS (Butler National), the buying that stood out was not just that an insider purchased shares. It was who bought and the context around it. When a meaningful owner adds shares in the open market, it is harder to dismiss as a symbolic gesture. It can be a credible sign of alignment, especially compared to the more common “headline buys” that are small, one-time transactions.
The additional signal was the volume in insider buying versus selling, which showed abnormal buying pressure for a long duration.
Chart provided by gurufocus.com
The signal here is clear: meaningful insiders are showing a pattern of consistent buying. This not only gives the stock a higher Insider Scorecard rating, but also reassures long-term investors of management/shareholder alignment.
While it does not guarantee a move higher, it is definitely useful information.
And that is the point of this article: not all insider buying is equal. The goal is to separate signal from noise.
Want to see how we apply this in real coverage?
What higher-quality insider buying looks like
Insider buying becomes more useful when it is hard to dismiss as symbolic.
The strongest starting point is open-market buying, where the insider is buying shares the same way any investor would. It is simple and it requires real cash.
The signal gets stronger when buying is meaningful relative to the insider. The question is not “Is it big?” The question is “Is it big for them?”
It also gets stronger when there is a pattern. Repeat purchases over multiple days or weeks suggest the insider is intentionally building exposure. Cluster buying (more than one insider buying around the same time) can add weight for the same reason. Patterns are harder to fake than a single headline.
Even then, insider buying should be treated as confirmation. It can support your thesis. It should not be your thesis.
The Insider Scorecard: our simple framework
Our Insider Scorecard exists for one reason: to keep us consistent.
Instead of reacting to headlines, we run insider activity through a small set of checks that answer: “Is management acting like owners?”
For the public version of the Scorecard, the three core ideas are:
1) Insider ownership (baseline alignment).
If insiders already own a meaningful amount of stock, their incentives are naturally closer to shareholders. It does not guarantee success, but it matters.
2) Quality of insider buying (conviction vs. optics).
We care most about open-market buying that is meaningful and ideally repeated or clustered.
3) Share count discipline (the dilution check).
This is the most overlooked piece for small-cap investors. If share count is rising meaningfully, insider buying has to clear a higher bar to be considered a strong signal.
That is the framework. It is simple on purpose. It keeps insider buys in context and stops a single Form 4 from hijacking the decision process.
How to use this as an investor
If you want a simple way to apply this today, here is the mindset:
- Treat insider buying as a clue, not a guarantee.
- Prefer open-market buying over complicated transaction types.
- Give more weight to patterns (repeat buying or multiple insiders).
- Always ask what is happening with share count.
Even high-quality insider buying should be viewed as a confirmation signal, not a thesis, because risk management matters more than signals in small-cap investing.
If you do nothing else, do that last step. In small-caps, dilution can quietly do more damage than most investors realize, and it is the easiest way for insider buying to mislead you.
Bottom line
Insider buying can be one of the best signals in small-caps, but only when you grade it correctly. Headlines tell you that a buy happened. The Insider Scorecard tells you whether it is likely to matter.
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