As we turn the page on a new year the trend in insider trading remains largely the same as it was in 2009. Although the holiday week was shortened, insiders still found time to unload millions of shares in their own companies. In the last week of the year insiders sold over $222MM worth of stock while purchasing just $18.5MM worth of stock.
We believe this very bearish data is likely due to the long-term trends executives see within their own companies. Although insider trading is never a good short-term indicator it is very useful as a long-term indicator. After all, insiders rarely purchase their own shares with a short time horizon. Therefore, we believe insiders continue to refuse to invest their own money in their companies due to the negative trends they see in top line growth and job growth. In other words, they know the margin expansion story is not sustainable in the long-run and that the likelihood of another downturn in the market remains very high over the course of the next few years.
Of the few purchases the Nelson Peltz purchases continue to stand out. Although he claims not to have an activist interest in the Legg Mason, he continues to pour money into the firm and his history doesn’t tend to be that of an idle investor and board member.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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