Top insider trades (Thu, Mar 26)

Connor’s Commentary

Make sure to check out the “commentary” below the list of trades. I discuss why 80% of insider trades can be ignored, and how we filter out low-signal insider trades.

There were 106 new insider trades filed.

1 insider trade was flagged as High Signal. CEO Watcher Premium subs can see those in the Trade Notes section of this email or the CEO Watcher Premium Dashboard that is linked in the Data Dump section.

As a reminder, if you upgrade to CEO Watcher Premium (link) and find that it isn’t for you, I’ll give you a refund.

• 10% Owner (IAC Inc.) at MGM Resorts International $MGM purchased $37.22M (3rd largest purchase, out of 8).

• President and CEO at Grocery Outlet Holding Corp. $GO purchased $717.17K (2nd largest purchase, out of 2). This increased their listed holdings by 19%. Dip Buy: the stock was down -33% in the previous month. 5 other insiders also purchased the stock in the last 30 days.

• Director (Beall Pamela K.M.) at NextDecade Corp $NEXT purchased $505.50K (largest purchase ever, out of 2). This increased their listed holdings by 193%. Rip Buy: the stock was up 39% in the previous month.

• CEO and President at Tempest Therapeutics, Inc. $TPST purchased $500.00K (first purchase of TPST). Dip Buy: the stock was down -20% in the previous month.

• Director (Stenger Edward J.) at TEAM INC $TISI purchased $79.99K (largest purchase ever, out of 3). This increased their listed holdings by 50%. Their last purchase was 727 days ago.

• Chief Executive Officer at Better Home & Finance Holding Co $BETR purchased $66.30K (2nd largest purchase, out of 2). Dip Buy: the stock was down -51% in the previous 6 months. 1 other insider also purchased the stock in the last 30 days. Part of a 10b5-1 plan.

• Director (Fairbanks Jonathan B.) at Flowco Holdings Inc. $FLOC sold $165.16M (first-ever sale). This decreased their listed holdings by -20%. Reversal: they made 1 straight purchases before this sale.

• Chief Customer Officer at Dell Technologies Inc. $DELL sold $23.61M (2nd largest sale, out of 17). This decreased their listed holdings by -86%. Rip Sell: the stock was up 38% in the previous month. 6 other insiders also sold the stock in the last 30 days.

• Director (SARGENT RONALD) at FIVE BELOW, INC $FIVE sold $4.63M (5th largest sale, out of 16). This decreased their listed holdings by -20%. Rip Sell: the stock was up 51% in the previous 6 months. Their last sale was 1014 days ago. 1 other insider also sold the stock in the last 30 days.

• Chair and CEO at NUCOR CORP $NUE sold $1.87M (9th largest sale, out of 20).

• SVP & General Counsel at CONOCOPHILLIPS $COP sold $1.00M (2nd largest sale, out of 3). This decreased their listed holdings by -23%. Rip Sell: the stock was up 14% in the previous month. 6 other insiders also sold the stock in the last 30 days.

• Director (Zurquiyah Rousset Sophie) at TechnipFMC plc $FTI sold $440.18K (largest sale ever, out of 3). Rip Sell: the stock was up 48% in the previous 3 months. 7 other insiders also sold the stock in the last 30 days.

• Director (Lee Kang Jyh) at PHOTRONICS INC $PLAB sold $390.00K (9th largest sale, out of 31). Rip Sell: the stock was up 23% in the previous week. This insider has sold the stock 2 times in the last 30 days.

• SVP, CHRO at JABIL INC $JBL sold $278.33K (largest sale ever, out of 6). 1 other insider also sold the stock in the last 30 days.

• and more…

Commentary

Most insider trades are totally useless. Filtering these out is the difference between outperforming and underperforming the market.

Here is how we filter out low-signal insider trades.

Reminders about our dataset

Our database includes all insider buys and sells from 2009-2024 (~900k trades).

The insider trades are pulled from the SEC EDGAR database.

We filter out over 80% of all insider trades before running our analysis because they contain an error, are planned trades, or are too small (or the company is too small).

All returns are calculated using the “next trading day open price after the filing was made public,” as this best reflects the price we would be able to buy/sell the stock. 

• For example, for an insider trade filed on a Wednesday (regardless of what time it is filed), we use the open price on Thursday.

The returns in the charts are “adjusted returns,” which just means we include dividends, stock splits, etc.

The dataset includes stocks that were acquired, delisted, went bankrupt, etc. This prevents survivorship bias.

On to the data…

Over 80% of insider trades are noise.

They include tax sales, dividend reinvestments, employee stock purchase plans, planned trades, private placements, compensation plans (like options and RSUs), etc.

These are low-signal trades that should be ignored because they significantly underperform non-low-signal trades.

Low-signal insider purchases average 12.4% 1y returns (equally weighted), whereas filtered purchases average 21.6% (a massive 9.2% spread).

Astute readers will notice that the S&P’s average 1y return in the bar chart is significantly above the actual average S&P 1y return from 2009-2024 (16.4% v 13.3%). This is because we compare each insider purchase to the S&P's returns on that same date, so the S&P returns in this chart are the returns you would have gotten if you had bought the S&P rather than copying the insider purchases. Insiders time their purchases very well, so the S&P returns are higher when weighted on the days when more insiders are buying.

Let’s walk through the data

Our raw dataset includes 895,012 insider trades (~184 per day). 70% of the trades are sales, and 30% are buys.

Once we apply our “low signal” filters (discussed below), the number of trades falls to 158,210 (an 82% decrease). This comes out to about ~34 trades per day. 73% are sales, and 27% are buys.

Errors

The first thing we look for is errors in the filing.

We found 3,887 mismatched codes (0.4% of all trades), indicating the filing reported it as a purchase in one spot but a sale in another (or vice versa).

15,561 filings (1.7%) were delayed. Filings are required by law within 2 business days of the transaction. However, over 15,000 were marked as delayed by our system, and we don’t mark them as delayed until 30 days have passed.

17,136 filings (1.9%) had a share price that was more than +/- 20% the actual share price the stock was trading at when the trade was filed. This can be due to an error in the filing (a missing decimal point occurs occasionally), an off-market transaction, or a significant price move between the insider's purchase and the filing.

Overall, 33,582 (3.7%) of all trades had at least one of these errors.

Too small

The next step is to filter out all companies/trades we deem “too small.” 

We have many institutional investors using our data, so we must limit the stocks we focus on to those that they can trade. However, for your personal account, you may want to keep these small companies in your universe.

We use a market cap floor of $50M (at the date of the filing). 81,745 (9.1%) of the trades fall below this floor and are excluded.

We also filter out trades under $25,000 (222,234; 24.8% of all trades) and trades with a share price under $1 (44,502; 4.9%).

Overall, 251,338 (28%) trades were marked as “too small” because they met one (or more) of these conditions. 

However, this affects purchases far more than sales. 60% of purchases are <$25,000 v only 14% of sales.

Officers and directors

Three types of insiders must file trades: Executives, Directors, and 10% Owners (entities that own at least 10% of the company).

While there are certainly some 10% Owners worth paying attention to, on average, they perform much worse than Executives and Directors (particularly for purchases). So we also exclude 10% Owners when looking for High Signal Trades.

Overall, 96,395 (10.7%) trades are from 10% Owners.

Purchase filters

For purchases, we then filter out another 7 types of trades: employee stock purchase plans (ESPP), dividend reinvestments (DRIP), private placement, public offerings, purchase agreements, 10b5-1 plans, and recurring purchases (purchases that may not be marked as a 10b5-1 plan, but happen every month or every year).

Of the 271,460 purchases, 37,926 (14%) are filtered out for one (or more) of these reasons.

The breakdown is: 9,065 (3.3%) for ESPP, 12,448 (4.6%) for DRIP, 1800 (0.7%) for purchase agreements, 3962 (1.5%) for public offerings, 1474 (0.5%) for private placements, 13,440 (5.0%) for 10b5-1 plans, and 6,637 (2.4%) for recurring purchases.

Sell filters

For sales, we filter out 4 types of trades: tax sales, 10b5-1 plans, recurring sales, and when an insider is exercising and selling options/RSUs (which typically are received as part of their compensation plan and immediately exercised and sold when they vest).

Of the 623,552 sales, 405,526 (65%) are filtered out for one (or more) of these reasons.

The breakdown is: 60,386 (9.7%) for tax sales, 267,011 (42.8%) for 10b5-1 plans, 90,227 (14.5%) for recurring sales, and 205,849 (33%) for exercising and selling options/RSUs.

Overall

These filters remove ~82% of all insider trades, leaving us with ~34 non-low-signal trades per day.

The filtered purchases outperform the low-signal purchases by over 9 points after one year (21.6% v 12.4%).

For sales, the filtering has a much less dramatic effect, with the filtered sales underperforming the low-signal sales by 1 point (11.9% v 12.9%). As a reminder, we use insider sales as a bearish signal, so worse performance is better.

Insider sales underperform the market on average, but it is much harder to find insider sales that lead to negative returns.

Filtering out low signal insider trades is just the first step in identifying High Signal Insider Trades, which have the highest likelihood of significantly outperforming the market. We will explore the different factors that go into identifying High Signal Insider Trades in future write-ups.

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