Blizzard Stocks

We often take for granted all the technology at our fingertips and have forgotten how much information was available to us in the form of papers and books. One example are stock charts which regularly came to us in a book called, Daily Graphs. Each time we received an updated copy, we scoured the charts looking for stocks that had drawn much attention from the officers and directors. Nothing was more interesting to us than a stock which had an abundance of insider buys, which we called a “blizzard” of buys.

The insider activity was shown on the stock chart via circles with either a minus sign for sales above the circle or a plus sign above for buys. When there were 10 or more insider buys in a three to six-month period, it made it look like a snowstorm of buy orders, hence the name “blizzard” stocks. Why was this important?

Back then, the most successful portfolio manager in America was the Fidelity Magellan manager, Peter Lynch. Lynch liked to buy stocks which had little institutional ownership, were ignored or hated by Wall Street analysts and had seen significant recent insider buys. In his book, One Up on Wall Street, he explained that there were as many as 50 reasons for an insider to sell a stock. They could buy a house, pay college tuition or fund the new business of a relative. Lynch felt strongly that the insiders were the best at determining the value of the business and if they were buying aggressively, either in size or in the form of numerous purchases by multiple insiders, it was an especially strong buy signal.

Today, insiders are required by Federal securities laws and rules to file a Form 4 with the SEC within two days of their purchase and you can go to any number of websites to find out what insiders are doing on a day-to-day day basis. This information is available to everyone, but as Lynch pointed out, few investors tend to give it the level of importance he (and we) think it deserves.

For example, in the summer of 2012 Jamie Dimon, the CEO of JPMorgan (JPM) bought over $17 million of his own company shares at $34.22 per share. JPMorgan stock had taken a nose dive because a rogue trader had blown over $6 billion on what ended up being called “The Whale Trade”. What do you think investors who knew Jamie Dimon might have done with that public information?

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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