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Peter Paul and Marry were singing about something much more profane than insiders buying their own stock, but then again, were they? Pete Seeger may have written the lyrics but the tune is all the same. Don’t let anybody kid you, the two most important things in most people’s lives are their health and their money.  They generally don’t give a damn about their health until they lose it.  So it really boils down to their money.  Paying attention to what insiders are doing with their own money is the best way to avoid losing yours. 

And they are selling the crap out of this market. There is no insider buying, nada, zippo, zilch, duck egg. The mother of all bull markets, the best new Presidential market in history, and insiders are not buying a thing. Insiders are great at buying market bottoms but can they predict market tops? The jury is out on this one and the evidence is scant.   Don’t kid yourself, though. There is nothing good about it. You’ve been warned. This can turn into a treacherous market. I can’t tell you when but warning sounds abound.

Amazon blows out earnings and the stock rises almost 200 points after hours and closes negative the next day. Apple and Google both reported blowout quarters and close lower for the week. Earnings beats are met with ho hums and misses are taken out to the woodshed and shot like a crippled donkey. Yet the market recorded its best advance since November, up 5% in April.

I can’t tell you when the party ends but I can tell you how it will most likely end when the guests start leaving, and the drunkards get rowdy.

Interest Rates are heading higher.  The Federal Reserve promises that they won’t raise rates anytime soon. Powell and Yellin are the two most dovish Fed Chairpersons and Treasury Secretaries in history. This is a market supported by ultra-low interest rates and unsustainable pent-up demand from the Pandemic.  The Oracle of Omaha told you in May of 2019 if you could tell him that a 3% -30 year bond made sense, then stocks are a great bargain. I heard him say it more or less again today. Fast forward three years, stocks up 50%

The Fed has two mandates, stable prices, and full employment. If anyone tells you stable prices are working, they are high on their own supply. Look around you, everywhere prices are rising. Try to buy a house, rent an apartment, buy a car, feed a family, send kids to college. Prices are rising and fast. Try to find someone to hire, good luck.

Powell is convinced that inflation expectations are temporary, spiked by the pandemic and supply constraints. I’m not so sure. These things have a way of feeding on themselves. We have a Democrat in the White House that has bold social engineering and spending plans.

I sold my house into a bubble, now I’m renting at outrageously high rates while I wait to build a new home in Midway. I moved next to the train tracks in Salt Lake City, just like the picture on our website. The trains run night and day, never-ending. Rail freight is up 20% in a month.

The economy is heating up, it’s only a matter of time before inflation expectations become embedded expectations. 

This brings me to the most notable insider buy this week, Greenbriar GBX. CEO Furman bought another 10,000 shares at $48.80. This adds to his purchase last week of 50,000 shares at $43.85 and the 50,000 shares back on February 9th at $43.57.  Greenbrier specializes in transportation services, notably barge and railroad car manufacturing, railroad car refurbishment, and railroad car leasing/management services in the U.S, Europe, and South America. Wikipedia

But that’s not enough. Why not buy the railroads themselves. There’s a bidding war right now on KSU Kansas City Southern.

And maybe that’s a good idea but we don’t see any insiders buying the railroads but we do see an informed insider buying the cars on the train. The first place to stop when you are reading the tea leaves is the 10-K. This is the annual report where the CEO, the CFO, the in-house counsel, the outside counsel, the auditor read and scrub every word. If it ain’t true, it’s likely not to get put in the K. Sarbanes Oxley put teeth into adding criminal penalties for knowingly lying to the shareholders. Read the K if you want the truth.

Rail traffic is up double digits but that’s because the comparisons are with an economy that was experienced a forced shut down from Covid. The comparisons will undoubtedly level out. So I’m sure that Furman isn’t buying because he thinks that rail traffic is a double-digit growth business. The business has been better, at times, it’s cyclical no doubt but the future looks bright. Orders for 3,800 railcars valued at over $440 million were received during Q2 FY 21  and contribute to a $2.5 billion backlog and represent 1.8x book-to-bill.  The stock is cheaper than it was in 2018 when earnings were at their highest.

Furman is an interesting insider. He sold realms of stock in 2017 right before the cyclical peak. He may not have timed the trades perfectly but he bought 100,000 shares of it back in May of last year at $16.52. That’s pretty damn good and he is loading up on them now. That tells me that GBX has room to run and The Insiders Fund is buying GBX.

 

 

Chipolte CMG Director spent $1 million buying Chipolte at $1485 per share. He was recently appointed director but a million bucks is still a million bucks. Most directors will spend a token $200k and that’s window dressing. People are going out to eat. Just look at the great numbers and the new 52-week high Cheesecake Factory and Texas Roadhouse just posted. You want to be in Chipolte for the recovery.  Millennials and Gen Z love Chipolte and if you’ve ever had to feed them, you know they love to eat.  This looks like a very good buy and we are buying.

Akiva Katz is loading up on Mack Cali Realty Corp CLI. His latest purchase of 200,00 shares at $16.46. Katz has bought 1.28 million shares this year already, each time paying up for the stock.  Katz is a confident insider whose confidence is getting rewarded by higher prices.

Mack-Cali Realty Corporation is an owner, manager, and developer of premier office and multifamily properties in select waterfront and transit-oriented markets throughout the Northeast. Mack-Cali is headquartered in Jersey City, New Jersey, and is the visionary behind the city’s flourishing waterfront, where the company is leading development, improvement, and place-making initiatives for Harborside, a master-planned destination comprised of class A office, luxury apartments, diverse retail, and restaurants, and public spaces.

This is a contrarian buy and perhaps a very overlooked purchase. One of the things that following insider buying behavior is that it takes you down paths you wouldn’t logically do down. In the case of CLI, you get paid a 4.8% dividend while you wait to see where the path leads to. Mack-Cali is in the process of selling its office properties and this should establish the Company as a predominantly residential REIT.  This is a smart move but our enthusiasm is tempered by the fact that Katz is the managing partner of Bow Street, and although it’s certain that this is some of his own money, it’s certainly not all his money at risk. The Insiders Fund is a buyer in this REIT.

Director Barker bought 27,200 shares of BANC Banc of California at $18.42. It’s a good time to own banks with an improving economy and the prospects of higher rates sometime in the future. Candidly I can’t see what Barker sees in owning a California-centric bank with all the problems of California and the exodus from high tax rates from an overcrowded and expensive place to live that’s prone to catching on fire from global warming.  But then again, there’s always the weather.

By the way, I did this report today mostly listening to the Berkshire Hathaway annual Warren and Charlie show.


 

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Insiders sell stock for many reasons, but they generally buy for just one – to make money. You’ve always heard the best information is inside information.  Everyone who has any experience at all in the stock market pays close attention to what insiders are doing.  After all, who knows a business better than the people running it?  Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to SECForm4  as they provide a way to manage and make sense of the vast realms of data. I’ve tried a lot of vendors and SECForm4 is one of the most customer-friendly and responsive I’ve used.

We publish a subscription newsletter called The Insiders Report.  We offer a free 30-day trial so you have nothing to lose by trying it out. Be sure to carefully read the TERMS OF SERVICE.

Another source for insider buying and selling and much more is FinViz Elite. FinViz stands for financial visualization and they do an amazing job of providing reams of data and the tools to help you get to the bottom of it, the information that helps me make informed decisions and probable outcomes. I’ve been using their site for years and it only gets better over time.

This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal. 

BEWARE– Following insiders can be hazardous to your financial health unless you know what you are doing.  Unlike the raw, unfiltered data, The Insiders Fund blog informs you of the purchases that count, the ones that are just window dressing into deceiving the public that all is hunky-dory, and those that are just flat out other people’s money and should be just discarded like bad fish. As a rule, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing.

The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor. Also planned sales that just pop up out of nowhere are basically sales and are seeking cover under the Sarbanes Oxley corporate welfare clause. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.

Of course, insiders can also be wrong about their Company’s prospects. Don’t let anyone fool you into believing they never make mistakes.  No one tracks and understands insider behavior better than us. We’ve been doing it religiously since 2001 when I quit being an insider myself and devoted myself full time to managing my personal investments. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than you or I. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!  Needless to say, past good fortune is no guarantee of future success.  We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.

This blog is solely for educational purposes and the author’s own amusement.  Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar. 

Prosperous Trading,

Harvey Sax

The Insiders Fund was the 4th best long-short equity fund in the world in 2019, 4th Best in November 2020, 4th Best in January 2021 (I kid you not)