Not only is pretty much everyone on Wall Street bearish, but a group of people have turned optimistic — and they’re the ones who really count.
We’re talking about company insiders. Managing directors, board members and the like. The ones who know what’s really going on in the business.
Those wondering whether to save from stock funds in their 401(k) and IRAs during the market turmoil, and those thinking of adding to stock holdings in their retirement plans—heed this.
Three new reports landed on my desk, and they all report the same thing: A large increase in insider buying.
Insider stock buying has surged as stock prices have plummeted, reports The Washington Service, a financial data firm that has tracked these things since the 1970s. And net buying just jumped to its highest level since the Covid crash in March 2020.
“If you look at Insiders who have sold to Insiders so far this month, for the first time since March 2020, Insiders have bought more than they have sold.” the company reports.
Meanwhile, Midwest money manager Leuthold just sent me a market update reporting that their own key metric for buying and selling insider stocks just went “maximum bullish.” Leuthold measures insider sales versus insider buys and only considers large transactions, both ways: people buy or sell more than 100,000 shares or $1 million worth of shares.
“Over the past 30 years, this indicator’s maximum bullish readings have been almost immediately followed by significant market gains,” reports Chief Investment Officer Doug Ramsey. The only really wrong indicator was March 2008 (oops), just on the way into the global financial crisis. But we’re talking about an indicator that got you into the market in good moments on nine other occasions dating back to the early 1990s – oh, and that kept you out of the great bear market of 2000-3 to the end. Not bad.
And then I came across this interesting data point from VerityData (formerly InsiderScore), another financial data company that tracks insider buying and selling. “The number of weekly shoppers has reached the highest level since March 2020,” they write. “We find that buying has largely been driven by small-cap insiders. Russell 2000 sentiment is strongly positive, but S&P 500 sentiment is neutral.” (My italics.)
Insider stock buying has typically been a good indicator of where companies (and stock prices) are heading. Of course not always.
Please note that we are not discussing illegal insider buying based on important information that has not yet been disclosed to the market. We’re talking about legal action by company executives and directors to buy (or sell) stock when they are free to do so. They may not have important “market sensitive” information, but they do know what the business is like.
My job here, as always, is to provide you with information that will help you make informed investment decisions about your own retirement plans. And the focus is on long-term investing, not short-term trading.
As mentioned not too long ago, many small company stocks have already taken a much bigger hit than their larger counterparts. And historically, they’ve typically been a better investment during a market downturn because they typically fall more when everyone is gloomy and rise more when everyone is happy again. Outsiders are gloomy, insiders optimistic. That sounds like good news to me.
https://www.marketwatch.com/story/guess-whos-buying-stocks-11653485050?rss=1&siteid=rss Guess Who’s Buying Stocks? – Market observation