Why a cluster is studied
A single insider purchase can have a private reason: an ownership guideline to meet, a bonus to invest, a wish to show confidence. When a CEO, a director and a CFO all buy in the same fortnight, each with their own money, the private reasons are less likely to line up and the common cause is more likely to be a shared view of the business. Academic studies of insider trading have found that purchases by several insiders in a short window were followed by better returns on average than isolated ones, with the usual caveats about sample sizes and periods.
The window matters because insiders can only trade in open windows, usually a few weeks after an earnings report. Two insiders buying in the same open window may simply both have had their first chance to act. A cluster is a stronger reading when the buyers are independent of each other, the amounts are meaningful relative to their holdings and the stock is not in a scheduled purchase programme.
How InsiderTell counts it
A signal’s cluster is the number of distinct insiders with a scored buy (or sell) in the same stock within 14 days of it. Two insiders add 8 points to the conviction score, three or more add 15. The count is made when the signal is scored and made again when later filings land, so an early buy in a cluster is updated once the others file. The clusters page lists the stocks with the most insiders buying in the last 30 days, and each signal shows its cluster with links to the other filings.
Questions
How many insiders make a cluster?
On InsiderTell, two distinct insiders buying the same stock within 14 days of each other count as a cluster of two, and three or more as a full cluster. Studies use windows from a week to a month; the principle is the same.
Is cluster selling meaningful too?
Less so, but not nothing. Insiders sell for diversification, taxes and liquidity, often under 10b5-1 plans, so coordinated selling is common after a lock-up or a strong run. Several insiders selling large stakes outside plans in the same window is the case the warning score weighs.