Energy Insiders Are Backing Up The Truck

Investors are a fickle sort. As I’m writing this, it’s looking like the Dow and S&P 500 will be down sharply today following news that the coronavirus is spreading faster than previously thought. But just yesterday, we had one of the biggest one-day point moves in this entire multi-century history of the stock market.

It’s hard to draw meaningful conclusions from that kind of buying and selling. No one can argue with a straight face that the people jumping in and out of the market like that are making informed decisions. Investors aren’t whipping out an Excel spreadsheet and updating their discounted cash flow stock valuation model with each new coronavirus headline. To even pretend that would be utterly ridiculous. The average investor has no idea what impact a virus outbreak will have on a company’s sales, let alone what that should imply for the share price.

If you want information you can actually use, watch the trading activity of the people running the companies. The SEC requires all company officers, directors, and shareholders owning 10% or more of a company’s voting shares to disclose any dealings they have in their company’s stock. If the CEO of the company is buying — or selling — the stock of the company he manages, the SEC believes the investing public has a right to know.

Company insiders tend to be fairly decent value investors. They don’t get every bend and twist in the stock price right, but they tend to large buyers near major market bottoms. And near tops, their buying tends to trail off.

This makes sense. If anyone has a reasonably good idea of what a company is worth, it ought to be the people running it.

Now, I should make a distinction here. I’m not talking about stock buybacks. Companies tend to be awful allocators of capital, buying back shares when prices are inflated and issuing new shares when prices are depressed. Stock buybacks are actually often a contrary indicator.

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