Top insider trades (Tue, Feb 3)

Connor’s Commentary

There were 119 new insider trades filed.

One insider trade was flagged as High Signal and added to the CEO Watcher Portfolio (dip buy + cluster buy + reversal). 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.

• Saba Capital has stepped up its buying of ASA Gold (ASA) during this dip. They’ve bought over $8M in the last few days

• The CEO and a Director at Community Bancorp (CMTV) bought $94k of the stock after strong earnings results and a 67% run-up in the last year

• A Director at International Paper (IP) bought $1M of the stock just one day after the CEO bought $2M

• 4 insiders (including the CEO) bought a combined $1M of Crane Co (CR) after the post-earnings dip

• CEO at Concentrix Corp (CNXC) bought $37k of the stock after the post-earnings dip

• A bunch of insiders at biotech Elutia (ELUT) have been buying the dip since October

• GIC Private sold $330M of StandardAero (SARO) just one day after Carlyle Group sold $1.5B

• The Chief Commercial Officer and a director at Seagate Technology (STX) sold $9.35M of the stock. The stock is up 350% in the last year

• The COO at United Rentals (URI) sold $2M after the stock had a poor earnings call

• Berkshire Hathaway continues to sell DaVita (DVA) with another $200M sale

• and more…

Commentary

This provocatively named paper - The Death of Insider Trading Alpha: Most Returns Occur Before Public Disclosure (link) - was published recently and is making the rounds.

Its premise is that if you track returns from the date the insider trade is made public (the filing date), instead of the date the trade is actually made (the transaction date), most of the alpha disappears.

1. This is true

2. CEO Watcher uses the filing date + 1 when doing our analysis to best represent when we could actually buy the stock on the open market after seeing the insider trade. Most of the time, you can actually buy on the filing date, but we want to be extra conservative

3. They use an overly short timeframe for non-quant investors, only looking out to the transaction date + 4 for their calculations. Most discretionary investors should use insider buys to identify potential long-term holdings where management is signalling that the company is undervalued, not trying to day-trade.

The decay of generic insider-trading alpha has been well known for over a decade. We even see this in our data going back to 2009. Insider buys perform roughly equivalent to the S&P, while insider sales underperform the S&P by a couple of points.

Insider sales can be a good source of stocks that will underperform, but it’s very hard to use them to find stocks that will have negative returns. Also, just ignore insider sales at tech companies. It’s a large part of their compensation, so they are always selling.

In 2012, Cohen, Malloy, and Pomorski released one of my favorite insider trading papers titled Decoding Inside Information (link).

In this paper, they touched on the lack of generic insider-trading alpha and identified that over 50% of insider trades are “routine” and should be ignored. Then, if you only look at the sub-50% of trades that are “opportunistic”, there is significant alpha.

At CEO Watcher, we actually remove ~70% of all trades that we deem as noisy (error in the filing, private transactions, tax sales, 10b5-1 plans, employee stock purchase plans, etc), and we do another layer of analysis on top of that to identify the highest signal insider trades (dip buys, cluster buys, reversals, etc).

Once all of our analysis is done, less than 3% of insider purchases qualify for our High Signal List.

As you can see below, dip buys and cluster buys have smoked the S&P since 2009 (once you’ve filtered out all of the noise).

Because of how our backtesting data is set up, I can’t actually include the reversals in the same chart, but we also see that reversals (an insider flipping from consistently selling to buying) outperform the market significantly as well.

In the CEO Watcher Premium Dashboard (a spreadsheet shared with premium subs), we have individual sheets for all of the dip buys and reversals that occurred in the last month. We also include a sheet for all of the High Signal Insider trades we’ve ever flagged and the up-to-date holdings in the CEO Watcher Portfolio. There is a link to the spreadsheet at the top of the Data Dump section in this email.

CEO Watcher Premium subs can also set alerts on ceowatcher.com to get alerts any time a dip buy, reversal, or cluster buy happens (and basically any other type of transaction you want alerts for).

If you are interested in CEO Watcher Premium, you can upgrade at ceowatcher.com. If you find it isn’t for you, just email me, and I’ll refund you.

keep scrolling. top trades + all of the charts and data below

CEO Watcher Premium

The rest of this email (including today’s top insider trades + all the charts and data) is for CEO Watcher Premium subscribers only. To see an example of the Premium email, click here.

Upgrade to CEO Watcher Premium at ceowatcher.com to unlock:

• The Premium daily emails

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• Full access to the CEO Watcher Premium Discord where I share my notes and holdings in the CEO Watcher Portfolio

• The Premium Dashboard, which has a bunch of charts/tables with insider trading data that is updated each day

If CEO Watcher Premium is not for you, I give full refunds with no questions asked.