By Alexander Green Over the last few columns, I’ve written about insider buying and its exceptional value as an indicator of future stock prices.
It’s not a difficult concept to understand.
Insiders – corporate board members, CEOs, presidents and other officers – have access to all sorts of material, nonpublic information. (Material in that it is relevant to the near-term prospects for the business – and nonpublic in that it is unavailable to anyone outside the company.)
When these insiders pile into their own companies’ stocks with their own money at current market prices, it’s a telltale signal.
Academic research, institutional research and my own three decades of research all show that stocks under accumulation by insiders outperform the market by a wide margin in the weeks that follow.
Last year, for instance, I wrote about how the CEO of JPMorgan Chase (NYSE: JPM), Jamie Dimon, was backing up the truck at his own company.
On February 11, 2016, he purchased 330,000 shares at $59.22, an investment of more than $17.7 million.
At the time, the stock market had just gotten off to its worst annual start in over a decade. The economy was wobbling. Share prices were falling. And pessimism was rampant.
But Dimon took the opposite point of view. After purchasing his shares, he wrote a Wall Street Journal op-ed piece in which he said…
America’s future has never been brighter. The U.S. has the best universities, hospitals and businesses on the planet, and our people are the most entrepreneurial and innovative in the world, from the factory floor to the executive suite. We have by far the widest, deepest and most transparent capital markets, and a citizenry with an unparalleled work ethic and “can do” attitude.
Some readers responded that Dimon was hopelessly out of touch with the world. And his $17.7 million purchase at a time when the market was crumbling?
An act of sheer foolishness.
But now it’s 14 months later. And we can more clearly judge what Dimon said and did.
The shares he bought at $59.22 now change hands at more than $86. For those keeping score at home, that’s a 14-month gain of 45%, netting Dimon profits of more than $8.9 million.
The same percentage gains were available to anyone who decided to ride Dimon’s coattails.
Just how good was his timing? Well, 2016 turned out to be a breakthrough year for JPMorgan. It earned a record $24.7 billion on revenue of $99.1 billion, reflecting strong underlying performance across all its business lines.
Who knew? Well, Dimon knew.
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The bank has also bought back $25.7 billion in stock at tangible book value over the last five years. (When you divide growing earnings by fewer shares outstanding, you get even stronger growth in earnings per share.)
Hmm… massive share buybacks and heavy insider buying by one of the smartest guys on Wall Street.
Who says nobody rings a bell at the bottom?
But here’s something even more surprising. My research team and I have done a thorough investigation of more than 7.8 million insider transactions going all the way back to 2003…
What we uncovered was shocking: …read more
Source:: Investment You
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