Cheap Talk vs Real Money: The Only Signal for Investors That Matters Now

The Problem with Cheap Talk

There's a concept in game theory called 'cheap signalling'. It's the kind of communication that costs nothing, and therefore, could be abundant and unreliable.

You'll hear it often during concalls.

A CEO expressing confidence about the year ahead, or a CFO painting an optimistic growth trajectory on financial news channel... and so on.

This isn't necessarily untrue. But it comes at no cost and often no consequence of being wrong.

For professional management teams, often incentivised on short-term metrics, the optimistic guidance can support sentiment and hence stock prices in the near term. If reality falls short later, the penalty is hardly symmetrical.

That doesn't make such commentary useless. It just means you should treat it as one input, not the gospel truth.

Over time, if you track a company across multiple quarters, you begin to see patterns - who tends to overpromise, who stays conservative, and who quietly delivers.

That's when these signals start becoming more meaningful.

Cheap Signals vs Costly Signals

To be clear, management signals do matter.

After all, insiders have the best view of their own business. They see the order book, the early signs of demand shifts, regulatory headwinds, execution bottlenecks, often well before the market does.

So yes, pay attention to what they signal. Just be careful where you look for that signal.

Here's a useful way to think about it...

Don't tell me what you think. Tell me what you own.

This was popularised by Nassim Nicholas Taleb. Unlike words, actions come with consequences. And in markets, the most credible signal is one that carries a cost.

Skin in the Game

This brings me to insider buying.

When promoters or senior management use their personal capital to buy shares from the open market, that's not a press statement. That's a position.

As Peter Lynch famously put it...

• Insiders might sell their shares for many reasons, but they buy them for only one - they think the price will rise.

Now, some argue that this creates a conflict - talking positively while buying stock.

But I disagree.

First, these transactions are disclosed.

Second, the downside for insiders is real if things don't play out as signalled.

In other words, the signal is not free. It has skin in the game.

Not All Insider Buying is Equal

That said, even within insider activity, there's a spectrum. Some signals are meaningful. Others are little more than optics.

Signals that could be noise, often look like:

• Frequent, small-value trades that don't materially change ownership
• Mixed signals, with one insider buying while another sells
• Promoters behaving like short-term traders in their own stock

These are closer to cheap signals. This is why it helps to have a framework.

A Simple Lens: SMARTCLUE

Think of insider buying through this filter:

• S - Size of trade: Is the buying meaningful relative to their stake?
• M - Market cap: In smaller companies, incremental positive in ownership moves the needle more.
• A - Avoid conflict: Stay away from erratic or contradictory insider activity.
• R - Recurring buys: Consistency matters more than one-off purchases.
• T - Trend in sector: Many companies with insider buying can hint at broader tailwinds.
• C - Clustered trades: Many insiders buying together strengthens the signal.
• L - Low Valuation: Even the best business can be a poor investment at the wrong price. So, make sure to not ignore valuation.
• U - Underlying fundamentals: Quality ultimately determines staying power.
• E - Executive hierarchy: A CEO buying carries more weight than a junior executive.

Where This Leaves You

Tracking insider buying is not a shortcut. It doesn't replace due diligence. But it's a useful starting point.

If a stock passes your fundamental filters and insiders are increasing their exposure at similar (or higher) prices, you're aligning yourself with people who arguably understand the business best and have money on the line.

From there, the job becomes simpler - Buy with discipline, be patient, and let time, and business performance do the heavy lifting.

In recent notes, I've shared a few sectors and companies where such activity is visible. You can access these by clicking the links below:

Amid Market Panic Insiders Are Quietly Buying this Sector

Markets Panic, Insiders Buy: What Smart Money Knows That You Don't

The stocks mentioned in these articles are not recommendations.

They're worth a closer look as starting points for your own research.

In a market full of noise, it often pays to follow signals that are hard to fake.

Happy investing.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Quantum Information Services Private Limited (Research Analyst)