By Jonathan Baird – July 22, 2021

A long-time investment maxim is that it pays to watch the stock transactions of company insiders, for they are in the best position to know the future earnings prospects of their company’s. Indeed, academic studies have confirmed that extremes of insider buying or selling are a useful leading indicator
of share prices. Various services exist that provide such data to sophisticated investors.

It is that monitoring insider transactions have proven to be a valuable part of an investor’s toolkit that the spike over the last two years of selling by the very largest insider stockholders is worthy of note.

It is of particular interest that the most intense selling by the largest (and presumably the most knowledgeable) investors has coincided with the massive growth of small new retail investors (presumably the least knowledgeable) using RobinHood and similar trading apps. Are we witnessing a massive transfer of investment risk between the two groups?

While an investment strategy should not hinge on a single data point or indicator, unusual levels of insider transactions have historically preceded market turning points, which is why the accompanying chart should give investors pause. It is worth noting that insider selling by smaller stockholders has also
increased during 2020-21.

Extremes of market and/or investor behaviour is always worthy of attention, with the current conspicuous selling by the largest company insiders surely being an example.

We believe the 2020s will be a challenging decade for investors, one that will produce significant risks but also great opportunities for prepared investors. We advocate a pragmatic approach that combines fundamental and technical considerations within a geopolitical and historic context.

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