Just like Bitcoin and other crypto currencies are clearly a bubble manifestation of the millennial generation, the ETFs and index funds so popular with baby boomers are a manifestation of their own bubble. We have been tracking insider buying and selling since 2001 as closely as anyone in the country. When we started our strategy for the Insider Fund, we suspected that focusing on companies that significant t insiders (C- level officers and directors) buying would help us avoid financial disaster we could not recover from. This has proven to largely true. It is the bedrock of our philosophy. In 2001 there were about 8000 publicly traded companies with 300-400 insiders who bought stock over any 6-12 month period. Today there are half the amount of public companies and only about 250-300 with material insider buying, still roughly 5%.
Why is that important? Because when you buy stock from management that is unloading it as fast as they can, and you lose money; well who can you blame for this stunning arrogance on your part? Yes there are exceptions to this, the founders of Facebook, Amazon, and many other great growth stocks never purchase stock. But for every Amazon out there are 500 that are never going to be anything close to it.
Keep this in mind, then. When you are buying a low-cost index fund, you are buying an instrument that is composed of 95% of companies where management is unloading their stock and exercising stock options with years to spare. When this ends badly and you lose a lot of money buying the “market”, you will have one question to ask yourself. Did you really think you knew the business better than the people running it?
