Is watching insider purchases still supported?

[black-dog]

While looking at a stock over the weekend and seeing nothing but (small) insider sales, I asked "hey, is there evidence of how important this is?"

 

I happened across an interview with David Miller of Catalyst Funds, where he discussed past research about the predicitive value of insider buying and selling, and talked about a long-term study that he and others had expanded on. It sounded good, I was inclined to believe. But I looked up the funds, and even excusing the 5% expense rate, they got trounced by the market (look at CIAAX/CIACX/CIAIX for the stock, and IIXAX/IIXCX/IIXIX for their bond side) and they've failed to beat the S&P500.

 

 

As a traditional value investor, I personally might still like the vote of confidence, but is there any evidence supporting using insider buying/selling as a data point or even a checklist item when evaluating stocks?

[stahleyp]

A better look is this is with his Small Cap fund (CTVAX).

 

On average, I'd rather have a company where insiders are buying. In this market though, a lot of higher returning companies issue a lot of option related compensation and have limited insider buying. His fund held up pretty well in 2008 for what it's worth. I'm cherry picking dates but from inception in 2006 to Aug 2014 it beat it's peers and S&P 500 but has gotten crushed since then (bottom 100% over the past 5 years). Expenses are pretty high and it has 1 star from Morningstar so year, recent performance has been bad.

[SharperDingaan]

Insider buying is still a useful predictor.

Problem is that many reviewers are clueless in its interpretation.

 

Insider sales have to be compared against vested management option grants. Most insider sales are substantially offset against vested grants, and are simply 'washes'. No predictive power as the sold vested shares were largely replaced with new option grants. New option grants and their vesting periods are approved by shareholders every year, it just takes work to go through them - which many investors prefer not to do.

 

Accumulating vested shares just means they are part of the individuals pension plan.

Shares are not being sold as the current tax bite would be prohibitive. Support for the company is just happy coincidence.

 

SD

 

 

 

[CorpRaider]

Fuller Thaler (yeah the nobel laureate guy) has a series of funds and I think cheap stocks with insider buying is the main muscle movement for at least some of the strategies.  O'Shaugnessy has done some work on this as a factor/indicator as well.  I think it's in What Works on Wall Street, but not 100 on that.

[black-dog]

Yeah, Fuller & Thaler has a couple, and they're doing better than their benchmark (the Russell 2000), though not by a ton.

 

I think my question in the larger sense is that it makes intuitive sense that we want management who are going to act like owners when making decisions, and for me, particularly, that they're not going to take outsized long-term risks for short-term inventive gains.

 

But if we're discovering that companies with high insider buying aren't outperforming (even if selling doesn't matter), then does it matter? Either the market's priced in this factor, or management that isn't adding more of their own stock might be just as good as management that does.

 

[chrispy]

Jamie dimon's insider purchases have been timely and a great indicator to purchase:

 

https://www.google.com/amp/s/www.wsj.com/amp/articles/BL-MBB-64133%3fresponsive=y

[rkbabang]

Insider buying is still a useful predictor.

Problem is that many reviewers are clueless in its interpretation.

 

Insider sales have to be compared against vested management option grants. Most insider sales are substantially offset against vested grants, and are simply 'washes'. No predictive power as the sold vested shares were largely replaced with new option grants. New option grants and their vesting periods are approved by shareholders every year, it just takes work to go through them - which many investors prefer not to do.

 

Accumulating vested shares just means they are part of the individuals pension plan.

Shares are not being sold as the current tax bite would be prohibitive. Support for the company is just happy coincidence.

 

SD

 

The way I think about it is that insider selling can in a small percentage of instances be a bad sign, but it usually means nothing at all.  Insider buying on the other hand is almost always a positive sign.

 

[netnet]

Insider buying is still a useful predictor.

Problem is that many reviewers are clueless in its interpretation.

 

Insider sales have to be compared against vested management option grants. Most insider sales are substantially offset against vested grants, and are simply 'washes'. No predictive power as the sold vested shares were largely replaced with new option grants. New option grants and their vesting periods are approved by shareholders every year, it just takes work to go through them - which many investors prefer not to do.

 

Accumulating vested shares just means they are part of the individuals pension plan.

Shares are not being sold as the current tax bite would be prohibitive. Support for the company is just happy coincidence.

 

SD

 

The way I think about it is that insider selling can in a small percentage of instances be a bad sign, but it usually means nothing at all.  Insider buying on the other hand is almost always a positive sign.*

 

*Except when you have a bonkers idiot, like Kenneth Lay of Enron.