Not only is pretty much everyone on Wall Street bearish, but one group of people have turned bullish — and they are the ones who really matter.
We’re talking about company insiders. Chief executives, board members and the like. The ones who know what’s really going on in business.
Those wondering whether to bail out of stock funds in their 401(k) and IRAs in the market turmoil, and those thinking of adding to the stockholdings in their retirement plans — take note.
Three new reports dropped onto my desk and they all report the same thing: A big surge in insider buying.
Insider stock purchases have surged as share prices have plunged, reports The Washington Service, a financial data company that has been tracking these things since the 1970s. And net buying just leapt to the highest levels since the March 2020 Covid crash.
“When looking at insiders buying to insiders selling so far this month, more insiders have purchased than sold for the first time since March 2020,” the company reports.
Meanwhile, Midwestern money manager Leuthold just sent me a market update which reports that their own key metric of insider stock buying and selling has just turned “maximum bullish.” Leuthold measures insider sells versus insider buys, and only looks at big transactions either way: People buying or selling more than 100,000 shares or $ 1 million worth of stock.
“In the last 30 years, maximum bullish readings on this indicator have been followed almost immediately by substantial market gains,” reports chief investment officer Doug Ramsey. The only really false indicator was March 2008 (oops), just heading into the global financial meltdown. But we’re talking about an indicator that got you into the stock market at good moments on nine other occasions going back to the early 1990s — oh, and kept you out of the big bear market of 2000-3 until right at the end. Not bad.
And then I came across this interesting data point from VerityData (formerly InsiderScore), another financial data company that tracks insider buys and sells. “The amount of weekly buyers reached the highest level since March 2020,” they write. “We note that buying has largely been driven by insiders of small-cap companies. Russell 2000 sentiment is strongly positive but S&P 500 sentiment is neutral.” (My italics.)
Insider stock purchases have usually been a good forward indicator of where businesses (and stock prices) are headed. Not always, of course.
Note, please, that we are not talking about illegal insider buying based on major information that hasn’t yet been disclosed to the market. We’re talking about legal moves by company executives and directors to buy (or sell) stock when they are free to do so. They may not have major “market sensitive” information, but they know how business is looking.
As ever, my job here is to give you information that helps you make informed investment decisions about your own retirement plans. And the focus is on long-term investing, not short term trading.
As pointed out not long ago, many small-company stocks have already taken a much heavier beating than their bigger counterparts. And in the past they have usually been the better investment during a market slump, because they typically fall more when everyone is gloomy and rise more when everyone gets cheerful again. Outsiders are gloomy, insiders are optimistic. That sounds like good news to me.