The Insiders Fund, went 80% to cash last Wednesday in part market-driven, in part disillusioned with the likelihood of a China trade deal. The Fund had a great run up this year, over 24%, and now many stocks appear grossly over-valued. The “cloud” software stocks seem to have nothing but clouds themselves supporting their valuations. To top it off Uber went public at an $85 billion dollar valuation. This is for a company that has never made money, maybe never will as the drivers are estimated to be making less than minimum wage after factoring the cost of their vehicles they supply. For example, Delta trades at a $37 billion market cap, less than half of Uber’s. Even much-hyped Tesla which is the most valuable U.S. car company trades at $42.7 billion. We do live in the clouds.
Insiders themselves don’t see much value in the market, unloading stock at the fastest rate year to date. That doesn’t mean there aren’t great buys though. It’s a very bifurcated market with growth stocks trading at 100 x earnings and value biotechs like Biogen trading at 7.5 x earnings. Major airlines like Delta, United, and American all trade at far below market multiples with good secular tailwinds (air travel is growing around the world) although they are exposed to an economic cyclical slowdown.
We are holding our firepower dry, nibbling at selling puts in the few stocks insiders are willing to buy. We are headed into choppy waters and cash is a good thing to hold.