Insiders buys were far and few in between last week. You can see them at this link to the trades-

The most notable and outlandish was Harold Hamm’s monster buy of $47.6 Million of Continental Resources CLR at $17.77.  This is all the more remarkable since June, Hamm has bought $178 Million of this beleaguered oil and gas Bakken fracking pioneer.  Hamm has tons of this stock. Hamm is a big supporter of Trump who as much as he professes his love for the industry, the price of crude has cratered on his regime. Perhaps he feels oil will fare better under Biden?  Prices might improve as the Democrats make it tougher to find oil with fracking bans and environmental reviews.

Another depressed oil and gas buy was CEO Krohn’s purchase of W&T Offshore.  WTI is exclusively a Gulf of Mexico driller who basically shut down operations to conserve cash when the price of crude plunged. This is a long shot 10 bagger from the price of $2.15 that Krohn accumulated $1.359 million worth.  Here’s my thinking. Democrats get in the White House and take back the Senate.  Nasty, very nasty fracking rules get passed, the price of oil skyrockets, and the Gulf of Mexico plays are golden as the land based fracking plays get whacked by the new “green” dream.  Its hard to see why anyone would buy oil and gas but at least there’s a theory here.

Two insiders took advantage of depressed prices to buy Cooper Companies.  CEO White added another 1000 shares at $278.23.  EVP Sheffield bought 889 at $280.12.  Longs are encouraged as Sheffield bought a similar amount in June as well as CAO Riupati. Cooper has suffered like many medical companies that have had business delayed due to the Coronavirus. Unlike some industries though, we believe this is pent up demand and not permanently lost business.  Competition in the contact lends industry could also be weighing on the price.  The regularity of these buys also make me suspicious that this might be part of a corporate officer required ownership program but I don’t see any planned purchasing notice on the buys.  More likely they are buying on the dips as COO missed 2nd quarter earnings estimates and plunged $40 from $320.

The insider buy in Herman Miller must be a big contrarian play. Is there any demand for office furniture? This wasn’t a small buy either as a director bought 25,000 shares at $21.44.  Its hard to see if the office market is going to come back much less increased demand for furniture due to social distancing.  Perhaps the home office is going to be bigger than the market thinks and the real office will have to undergo much change and new furniture? Either case we are skeptical.

Vaccinex VCX is tempting but the track record of Albert Friedberg is horrendous.

Front Yard Residential makes some sense.  Single family homes are in demand but will renters be able to pay their rent?  RESI has the luxury of turning the rentals into sales in the booming single family home market.  Deer Park added to their significant holdings at $8.40

 


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Insiders sell stock for many reasons, but they generally buy for just one – to make money. You’ve always heard the best information is inside information.  Everyone who has any experience at all in the stock market pays close attention to what insiders are doing.  After all, who knows a business better than the people running it?  Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to SECForm4  as they provide a way to manage and make sense of the vast realms of data. I’ve tried a lot of vendors and SECForm4 is one of the most customer friendly and responsive I’ve used. This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal. 

BEWARE– Following insiders can be hazardous to your financial health unless you know what you are doing.  Unlike the raw, unfiltered data, The Insiders Fund blog informs you of the purchases that count, the ones that are just window dressing into deceiving the public that all is hunky dory, and those that are just flat out other people’s money and should be just discarded like bad fish. As a rule, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing.

The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor. Also planned sales that just pop up out of nowhere are basically sales and are seeking cover under the Sarbanes Oxley corporate welfare clause. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.

Of course insiders can also be wrong about their Company’s prospects. Don’t let anyone fool you into believe they never make mistakes.  No one tracks and understands insider behavior better than us. We’ve been doing it religiously since 2001, when I quit being an insider myself and devoted myself full time to managing my personal investments. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than  you or I. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!  Needless to say, past good fortune is no guarantee of future success.  We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.

This blog is solely for educational purposes and the author’s own amusement.  Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar.

Prosperous Trading,

Harvey Sax

The Insiders Fund was the 4th best long-short equity fund in the world in 2019