Top insider trades (Wed, Dec 17)

Connor’s Commentary

There were 268 new insider trades filed:

• CEO at Cooper Companies (COO) bought $800k (largest purchase ever, out of 7). The President of CSI also bought the stock, and five insiders bought the stock back in September

• CEO at Strive (ASST) bought $416k of the stock for their first purchase ever

• A director at Elanco Animal Health (ELAN) bought $213k of the stock (largest purchase ever).

• The CEO at SmartRent (SMRT) continues to buy

• The CEO at Rezolute (RZLT) bought $51k of the stock

• The CEO at Las Vegas Sands (LVS) continues to sell massive amounts of the stock with another $50M sale

• A director at QuantumScape (QS) sold $37M of the stock (largest sale ever).

• A director at Monster Beverage (MNST) sold $15M (4th largest sale, out of 19). It’s their first sale in 1.5 years.

• The CEO at Wealthfront (WLTH) sold $12M of the stock for their first sale ever

• and much more…

I go into more depth on these companies in the CEO Watcher Premium sections below.

Commentary

Note: upon request from a subscriber, I’ve started including a PDF file with all insider hirings/firings/resignations for each day at the bottom of the email for CEO Watcher Premium subscribers.

Yesterday, we looked at insider purchases by raw dollar transaction size and found that stock returns did not increase as transaction values increased. In fact, insider purchases of over $1M actually performed worse than those below $1M for companies with a market cap of less than $2B. If you missed that email, you can read it here.

However, there are better ways to measure transaction size, which we will look at today.

One is by looking at the size of the purchase relative to the market cap of the company.

In this case, we see pretty similar results to just looking at the raw transaction values. Once transaction values get sufficiently large, they actually become a lower signal.

Jeng, Metrick & Zeckhauser (2003), in their paper Estimating the Returns to Insider Trading, also looked at a similar measure of transaction size. They looked at the insider purchases as a percentage of the shares outstanding. They found that super small purchases (less than 0.004% of the shares outstanding) significantly underperformed the purchases that were larger than that, but they did not find that returns improved as transaction sizes continued to increase above the 0.004% of shares outstanding threshold.

The other way to look at transaction size is to look at the change in the insider’s listed holdings on the Form 4. Unfortunately, the accuracy of the listed holdings in the Form 4 is not great, as they often don’t properly include all of their accounts that may own the stock (trusts, retirement accounts, etc) or unvested stock options/RSUs.

However, I still believe the change in listed holdings is often directionally correct and can be useful. Scott & Xu (2004), in their paper Some Insider Sales Are Positive Signals, combined an insider's purchases from the previous six months and found that insiders who had increased their holdings by more than 10% through open market purchases had significantly better returns than those who increased their holdings by less than 10%.

When looking at our data, we see a much more monotonic relationship between percent_change (which is the percent increase of the insider’s listed holdings) and the 1y_returns (ie, as percent_change increases, the returns increase) than we saw when looking at the two previous charts.

Like the Scott & Xu paper, we also see a big increase in performance when separating “small” purchases from the rest. In our data, purchases that increase an insider’s holdings by less than 1% have significantly worse returns than the larger purchases. We also see a noticeable improvement in returns for purchases that increase the insider’s holdings by more than 10%.

There is still a slight drop-off once the percent_change gets above 50%, but I think this is affected by the fact that when the percent_change is above 50%, it is far more likely that the listed holdings are not correctly accounting for all of the insiders’ holdings, so the data is a lot noisier.

The three main learnings I take away from this data are:

1. Huge transaction values (measured in raw dollars) do not correlate with better returns

2. Large holdings increases do correlate with better returns (particularly above 10%)

3. Small holdings increases (below 1%) correlate with significantly worse returns

This is why we always include the table of each day’s Largest Insider Purchases (sorted by percent_holdings increase) in the Data Dump section for CEO Watcher Premium subscribers.

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

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