Part 1: Understanding Form 4
Form 4 is filed with the SEC whenever a company insider — an officer, director, or 10%+ shareholder — buys or sells their company's stock. They have exactly 2 business days. These filings are public the moment they're accepted.
Transaction Codes — What Each Letter Means
| Code | Meaning | Signal? |
|---|---|---|
| P | Open-market purchase — insider paid cash at market price | Strong bullish signal |
| S | Open-market sale — insider sold at market price | Worth noting, context matters |
| A | Award — shares granted as compensation | No signal, routine |
| M | Option exercise — converting options to shares | Neutral, often followed by S |
| F | Tax withholding — shares withheld to cover taxes | No signal, automatic |
| D | Disposition — shares returned or surrendered | Rare, context-dependent |
| G | Gift — shares donated or gifted | No signal |
What to Focus On
- Code P (open-market purchase) is the only transaction type that represents a genuine signal. The insider chose to spend their own cash at whatever the stock was trading at. No one forced them.
- Cluster buying — multiple executives buying in the same 30-day window — is a stronger signal than a single purchase, even a large one.
- Size relative to salary matters. A $50K buy from a CEO making $10M/year is noise. A $2M buy is not.
- Sells are ambiguous. Insiders sell for many reasons — diversification, estate planning, a house purchase. Buys have exactly one reason.
Part 2: Understanding 13F Filings
Any institutional manager controlling $100M+ in US equities must disclose their full long equity portfolio every quarter. Filed within 45 days of each quarter end. Covers Q1 (due May 15), Q2 (Aug 14), Q3 (Nov 14), Q4 (Feb 14).
What 13F Data Tells You
- Portfolio construction — what sectors and positions a fund has conviction on over multiple quarters.
- New positions — stocks that appear for the first time in a fund's filing. Often the most interesting data point.
- Position sizing — how much of the portfolio a fund has allocated to each stock. A 10% position is very different from a 0.1% position.
What 13F Data Does NOT Tell You
- Short positions — 13F only covers long equity. A fund can report 5 million shares long while simultaneously being net short.
- Options strategies — calls and puts are sometimes disclosed but often excluded.
- Current positions — data can be up to 135 days stale by the time you read it.