A month ago, IBM (NYSE: IBM) announced it will be splitting into two public companies. Here’s how The Wall Street Journal phrased it:

IBM’s CEO Arvind Krishna is betting on the well-practiced gambit of a corporate divorce to revive the former corporate icon, but tech history shows the outcome can be disappointing. The plan to spin off the unit that manages clients’ information technology infrastructure and had around $19 billion in annual sales would likely represent one of the biggest corporate separations in recent years, according to Dealogic data. Through the split and a big bet on cloud computing, Krishna is trying to inject growth after a lost decade during which the 109-year-old company fell behind rivals.

Then, a week later it reported earnings, which were in line but nothing spectacular. The shares meandered lower. Suddenly, I noticed a sizable insider buy for the shares.

Insider Buying

An insider is someone, a director or an officer, who has their pulse on the company – something that outsiders like you and I will never have. They know about upcoming deals, shifts in strategy, upcoming hires and potential offers for company assets, etc.

This is why it’s worth watching when an insider buys a lot of shares. But one insider does not raise my eyebrows much. To open my eyes wide, I need to see at least three insiders buying at various prices.

Cluster Buying

It’s one of the strongest signals in the market. In fact, War Room members have benefited immensely due to insider buying. As I get that information in real time, they get that same access!

Back to IBM

A couple of hours after the insider buy I alluded to above, another insider bought in.

The next day, yet another…

That was the signal for us to jump in. And in the following days, even more insiders ponied up cash, some to the tune of more than $1 million.

IBM shares may “look” expensive when you see their triple-digit price, but they may be a steal based on their value in comparison with other tech and cloud shares. Insiders buy for one reason only – they think the shares will go higher in the future. However, they sell for many reasons, which is why insider selling is not a great indicator.

Instead of focusing on price, focus on return on your investment. Whether you buy 10 shares or 1,000 shares, it’s the return on your capital that matters.

Action Plan: Right now, the insiders at IBM are betting that returns are going to be great in the future. They may know a lot we don’t, but they are signaling that they are willing to make that “put your money where your mouth is” bet.

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