I’ve bemoaned many a time in recent days about the dearth of insider buying. It’s a clear unambiguous end to any bear market of consequence when insiders back up the truck to buy their own company’s shares.  But that so rarely happens. It happened in the Fall of 2008-2009 and in March-May 2020, but most of the time, it’s not that way. No clear signals, just noise and maybe some good guessing from the chatter. Going back and rereading these blog posts about why I thought an insider was buying and how their transactions actually played out makes great stock market geek reading.  The Insides Fund blog provides a concise analysis of material insider buying and selling that cannot be found anywhere else. I’m extending the free trial period to 90 days as it may take you more time to be convinced of how valuable this information can be. In the case of this trade mentioned below, it would have paid for a lifetime subscription. Go back and look at what insiders were buying and why.

We made a great trade the first time following three insider buys at Cowen, Inc.  We followed the directors into the stock after we looked at the tangible book and other outrageously cheap financial ratios, figuring someone would buy the investment bank at these levels. It didn’t take that long for the news that Toronto Dominion was interested and we sold on the pop for a nice profit at a time when profits were scarce to come by. 

I felt really good about the intel. Insiders know when a deal is likely to happen and will often get far out in front of it with their purchases to avoid the semblance of very real insider knowledge which as any school boy or girl knows that profiting from that kind of insider information can wind up with the insider losing his gains and incurring legal costs or worse.

One of the challenges of arbitrage trading after the big move has been made that the gains now are relatively muted and owning the stock now has considerable risk if the deal doesn’t happen. One way of still profiting on the opportunity is to write way out of the money puts with enough time left on the expiration so that they are worth something. For example we sold large numbers of COWN Jan 22.5 puts with the anticipation that the deal would indeed happen and once announced we wouldn’t have to wait very long for the premium to evaporate. We’ll let you know how this works out in a future update.

 


 

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Read the full article by clicking the link below: https://www.theinsidersfund.com/2022/07/insider-buying-week-7-22-22/

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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.  We may own positions, long or short, in any of these names and are under no obligation to disclose that or share future updates.  This blog is solely for educational purposes and the author’s own amusement.

The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar.   We welcome your comments on our analysis.

Insiders sell their 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?  Insiders have as close to perfection information as any investor can have but their motive are not always pure. For example, the CEO of a poorly performing company may buy a relatively trivial amount in the hopes of painting the tape, showing that he is a team player, or just trying to position his larger holdings of stock in a way that may protect his nest egg with a collared option strategy or hypothecated loan on his stock.

Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other within 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. SECForm4 is one of the smaller ones but I like supporting Frank. He is not arrogant. He’s helpful and has great prices. He also trades on his own data so I like people that eat what they kill.

We publish a subscription newsletter called The Insiders Report.  We offer a free 90-day trial so you have nothing to lose by trying it out.

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.  Do your own analysis. They can be wrong, and in many cases, maybe most cases have no more idea what the future may hold than you or me. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!

We like Fly on the Wall for keeping up with what events might be happening, analysts’ comments, and whatever else could be moving the stock.  Dow Jones news service is an essential tool but many services pick up their feed like they do Bloomberg. For quick financial analysis, it’s hard to beat Old School Value.

 

Prosperous Trading,

Harvey Sax