Insider Trading - The Moves of the Informed

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The original code and analysis can be found here: https://github.com/danthegoodman1/SECForm4Analysis

This is not financial advice, this is purely my observations and conclusions from publicly available SEC Form 4 filings.

In early May 2022 (time of writing) we have all been watching as our portfolios have droped over the last 6 months. The astute trader knows that this is the time to buy and hold, not the time to sell. But with so many stocks on fire sale, how do you know which ones to buy?

I say follow the money, specifically those who know more about these companies than anyone else, the executives, the insiders.

While these may be biased traders, taking an opportunity to purchase significant portions of their net worth in their own company’s stock rather than diversifying their portfolio suggests more than just bias. It suggests maybe, just maybe, they know something we don’t.

So who is buying up their own stocks? Let’s look at all of the SEC Form 4 filings in Q1 and Q2 2022 to find out. In doing so I ran through 200,000 filings to find the most bought and sold stocks by insiders during this economic downturn.

Insider transactions in 2022 so far

Fig. A - Insider transactions in 2022 (click/tap to expand)

We can see both the Ukraine conflict, as well as the recent decline of the market in April and May.

But what’s that uptick in Mar 31 and Apr 1?

Fig. B - Top Issuers acquired on March 31 and April 1 2022

A few banks hold the podium for buys, nothing disproportionate. I’m sure there is some instigator for all of these bank insiders buying shares.

Nearly all of the top listed companies here have had their stocks slowly driving down for the last 6 months, maybe a lot of bankers are finding this to be an opportune moment to load up on some equity.

Who is buying in April and May 2022

Fig. C - Insider buys in April and May 2022 (click/tap to expand)

WOW! Gary Freidman is buying a lot of Restoration Hardware!

Let’s break down some of what you might notice as signifcant in volume or frequency:

Apple (AAPL):

COO, CFO, and General Council all buying lots of shares. That is a good sign.

Cloudflare (NET):

CEO and COO buying shares. This tied with their recent product announcements and the fact that they middleman a significant portion of the internet gives me great confidence in the rise of their stock prices.

Restoration Hardware (RH):

This is either a really bold bet (yes the stock market is an alternative casino), or he knows something we don't. Something of this magnitude is nothing to ignore.

Tingo (TMNA):

3 of the same amount might mean something planned, so I probably wouldn't consider this... but the industry of African Agri-Fintech is wildly interesting.

Albertsons (ACI):

Grocery stores. Chief Customer and Digital Officer, Chief Human Resources Officer, Chief Operating Officer all bought shares.

So, what’s your plan Dan?

I plan to be expanding my portfolio through AAPL, NET, and RH. Not sure when, but this is my plan.

Apple being my safest choice.

Cloudflare being my “I know the industry and I think this is too low” choice.

And I like Restoration Hardware furniture (who doesn’t?)...

Just kidding, their profit margins have been growing impressively over the last few years, up from 8.3% in Jan 2020 to 18.3% in Jan 2022. Furthermore their revenue and earnings are growing faster than their expenses:

Fig. D - Restoration Hardware Financial Health, from simplywall.st

I will admit the flatlining recently is a bit concerning... But again Gary here probably knows something we do not.

Another question that arises is how will luxury spending (Like luxury furniture) be impacted by a recession?

Looking at the same data, we can see there wasn’t a significant impact by the COVID-19 recession. But then again people were staying home then, they probably were incentivized to improve their homes if anything.

Could the taper in revenue growth be due to growing concerns about recession? Maybe.

We’ll take more about those concerns later.

Who is selling in April and May 2022

Fig. E - Insider sells in April and May 2022 (click/tap to expand)

WOW AGAIN! Here are some interesting sales!

Elon Musk and Tesla, but we all knew about that already.

Lots of snapchat sells too...

The CEO of XPO Logistics dumping $600M in shares is nothing to look past... those sales happened Apr 13th. So he did not make it out before the plunge, but he didn't hit the bottom either...

I don’t plan on taking any action based on stocks going down, so do what you will with this information.

Comparing buys and sells

If we look at buys and sells so far in 2022, we can drive 2 interesting insights:

Fig. F - Insider buys and sells by transaction amount, 100K-10M (click/tap to expand)

Apologies for the flipped colors on this chart, I have no idea why it has decided to do that.

By transaction amount, we can see that most trades are (relatively) small, and fairly even between buys and sells.

However if we look at the transactions by the percentage of the trader’s position, the story changes:

Fig. G - Insider buys and sells by percentage of holdings (click/tap to expand)

For nearly all of the curve we can see that insiders are increasing their position more often then they are decreasing it. This is a clear trend along the entire percentage axis.

There are also over 8,000 trades in which insiders open their entire positions on their own companies. Not entirely sure what causes this, but something to be noted.

Another notable observation is the shape of the 2 curves, and how they differ. As shown above red tapers out far slower than blue, which can be further highlighted by separating them out:

Fig. H - Insider buys and sells by percentage of holdings, separated by buys and sells (click/tap to expand)

What this tells me is that buying up shares is a more connected mindset across the board, not only by transaction count, but by position as well. Not only are more shares being purchased more frequently than they are being sold, but the cardinality of positions is also higher.

i.e. People of various investment ranges agree that now is the time to buy

So, do you agree? Is now the time to buy?

Economic Concerns

There’s been lots of talk about economic hardship and a recession coming, but let’s look at what the people actually think.

We can do this by looking at what people are Googling!

Fig. I - Google Trends of the search term ‘recession’

As illustrated in Fig. I, there has been significant growth of searches about the term “recession”.

Fig. J - Google Trends of the search term ‘inflation’

People are also searching more about inflation. Maybe due to inflation they want to lock in their mortgage price so that does not rise on them like prices of other things:

Fig. K - Google Trends for the search term ‘Fixed-rate mortgage’

I can’t say conclusively whether they are related, but they sure are correlated.

Hopefully the recession is quick. At least this time everyone won’t be locked inside… right?

Let’s Discuss

Want to discuss the post with me? Feel free to drop me a line on these Twitter or LinkedIn posts!

Daniel Goodman on LinkedIn: Insider Trading - The Moves of the Informed

While the stock market is plunging, here is what the inside traders are doing https://lnkd.in/g6ppxDpq #stockmarket #stocks #insidertrading #finance...

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