STRATEGY METHODOLOGY

OVERVIEW

Sequential compounding strategy that follows insider purchases in asymmetric-information sectors. Validated across 6 years of out-of-sample and in-sample data (2020-2026).

Data source: SEC EDGAR Form 4 filings — the mandatory disclosure that corporate insiders (officers, directors, 10% holders) must file within 2 business days of buying or selling their company's stock.

Core thesis: Officers in asymmetric-information sectors (pharma, mining, oil & gas, medical devices, healthcare) have access to material non-public information. When they buy with conviction — fast filing, large purchase, significant position increase — the signal has predictive power.

4-STEP SIGNAL PIPELINE

STEP 1: BASIC FILTERS

FILTER	THRESHOLD	RATIONALE
Trade Type	Purchase only	Sells are noisy (tax, diversification)
Officer Title	CEO, CFO, COO, VP, etc.	Officers have MNPI; directors do not
Purchase Value	≥ $10,000	Filters trivial/token buys
Filing Lag	0-5 days	Fast filers signal urgency
Position Increase	≥ 5%	Meaningfully increasing stake
SIC Sector	Asymmetric only	Pharma, Mining, Oil, Medical, Healthcare

STEP 2: MULTI-INSIDER & MOMENTUM

FILTER	THRESHOLD	RATIONALE
Multi-Insider	≥ 1 insider in 14d window	Cluster = stronger signal
Momentum Check	No >5% run-up prior week	Avoids chasing; insiders buy dips
Volatility	≥ 2% daily stdev (20d)	Dead stocks have no edge
Market Cap	≤ $5B	Small caps have stronger insider edge

STEP 3: CONVICTION SCORING (≥ 5 REQUIRED)

COMPONENT	POINTS	CONDITION
CEO/Chief Executive	+2	Title match
CFO/Chief Financial	+3	CFOs know the numbers — strongest signal
COO/President	+2	Title match
VP/EVP/SVP	+1	Title match
Purchase ≥ $500K	+2	Large dollar commitment
Purchase ≥ $100K	+1	Meaningful commitment
Filing Lag ≤ 1 day	+2	Same/next day = urgency
Filing Lag ≤ 3 days	+1	Fast filing
Position Increase ≥ 50%	+1	Significant stake increase
Asymmetric Sector	+1	Information edge sectors
Multi-Insider ≥ 2	+2	Multiple officers buying (base ≥ 3 req)
Tight Cluster ≥ 3 in 5d	+3	3+ officers within 5 days (base ≥ 3 req)

Maximum conviction score: 10

STEP 4: DEDUPLICATION

Same insider + same ticker within 30 days = keep first signal only
Same ticker + same filing date = keep highest conviction signal

ASYMMETRIC INFORMATION SECTORS (SIC CODES)

SECTOR	SIC RANGE	WHY
Gold & Silver Mining	1040-1090	Drill results, resource estimates known before market
Oil & Gas Extraction	1310-1382	Reserve data, well results are MNPI-rich
Pharmaceuticals	2830-2836	Trial data, FDA decisions create binary outcomes
Medical Devices	3841-3845	Regulatory approvals, clinical data
Healthcare Services	8071-8099	Reimbursement changes, contract wins

KEY FINDINGS

1.Loose filters generalise, tight filters overfit. MI=2, Pos=10% returned -38% OOS. MI=1, Pos=5% (current) returned +1,160%.

2.Edge concentrates in small caps. Sub-$200M companies show 58-64% win rates vs 42% for $2B+.

3.CFO purchases are the strongest signal. They score +3 conviction because they see the financials first.

4.Cluster buying is the highest-conviction pattern. 3+ officers buying within 5 days is rare but powerful.

5.The strategy is inactive most of the time. Only 165 trades in 6 years ≈ 27/year ≈ one every 2 weeks.

6.Hard capital ceiling of ~$50K-$100K. Market impact makes it unexecutable above that.

DATA SOURCES

2010-2019: SEC EDGAR bulk Form 3/4/5 quarterly ZIP archives → parsed XML

2020-2022: SEC EDGAR EFTS API → Form 4 XML parsing (310,656 filings → 3,246 officer purchases)

2023-2025: OpenInsider CSV export + SEC EDGAR for late 2025

Combined: 101,762 raw purchase records after dedup