Following insider behavior closely was an excellent way to avoid some of the technology investing disasters in 2022. Darlings of the past decade—namely technology stocks—were hammered last year. The S&P 500 and Nasdaq plunged into a bear market as the Federal Reserve decided it didn’t want its legacy to be runaway inflation. Their record interest rate hikes crushed demand and continues to dampen interest for risk-sensitive assets.
We’re now deep in the throes of the 4th quarter earnings blackout when insiders are restricted from taking advantage of these reduced prices. Even if we weren’t, I don’t think there would be a headline rush into stocks when the yield on the S&P 500 is close to 1.6% versus the one-year Treasury of over 4.7%
There were a handful of notable insider buys. Some of these trades make sense, some seem like layups, and others just leave me scratching my head; what were they thinking?
Name: Roxanne S Austin
Position: Director
Transaction Date: 2022-12-27 Shares Bought: 25,000 Average Price Paid: $99.74 Cost: $2,493,501
Company: CrowdStrike Holdings Inc. (CRWD)
CrowdStrike revolutionized cloud-based cybersecurity and altered how consumers obtain and experience cybersecurity. CrowdStrike has founded on the premise that cyber attackers had an asymmetric advantage over older cybersecurity systems that couldn’t keep up with the frequent changes in enemy tactics. This problem is solved in a completely new way by the CrowdStrike Falcon platform, which is the first true cloud-native platform that can use large amounts of security and corporate data to offer highly flexible solutions through a single lightweight agent. Customers are protected from attackers by a new platform strategy that finds and stops threats to stop breaches.
Roxanne S. Austin has been a member of the board of directors since September 2018. Austin has been the president of Austin Investing Advisors, a private investment and consultancy business, since January 2004. She is also the head of EQT Partners’ U.S. Mid-Market Investment Advisory Committee. Austin presently serves on the boards of directors of Abbott Laboratories, a producer of pharmaceutical, medical equipment, and nutritional products, AbbVie, a biopharmaceutical firm, and Verizon Communications, a telecommunications provider. She was on the boards of Target Corporation, Teledyne Technologies, and LM Ericsson Telephone Company. Austin is a member of the California State Society of Certified Public Accountants and the American Institute of Certified Public Accountants. Ms. Austin has a B.B.A. in Accounting from the University of Texas in San Antonio.
Opinion: CrowdStrike is the clear leader in endpoint protection. It’s the industry’s best practice standard. Any CTO’s head will roll if they don’t buy CrowdStrike, and the company’s defenses are laid low as a victim of ransomware or some other endpoint hack attack. It’s a core technology holding, and it’s just a matter of the price you pay. It seems the century mark is the price Director Austin bites at in her first open market purchase.
Name: Lawrence A. Hilsheimer
Position: EVP and CFO
Transaction Date: 2022-12-27 Shares Bought: 4,050 Average Price Paid: $78.93 Cost: $319,650
Company: Greif Inc (GEF-B)
Greif, Inc. is the leader in the world when it comes to making and selling industrial packaging products and services. The company has operations in more than 35 countries. There are steel, fiber, and plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, transit protection products, water bottles, and remanufactured and reconditioned industrial containers. There are also services like container life cycle management, filling, logistics, warehousing, and other packaging services. In North America, corrugated materials like containerboard, corrugated sheets, corrugated containers, and other corrugated materials are made and sold to customers in industries like packaging, automotive, food, and construction.
Mr. Hilsheimer has been a member of the board of directors since October 2020. Mr. Hilsheimer has been the Executive Vice President and Chief Financial Officer of Greif, Inc., an industrial manufacturing firm, since May 2014. From April 2013 to April 2014, Mr. Hilsheimer was the Executive Vice President and Chief Financial Officer of The Scotts Miracle-Gro Company, which makes consumer gardening products all over the world. From October 2007 to March 2013, Mr. Hilsheimer held different executive positions at Nationwide Mutual Insurance Company. He started as EVP/CFO, then became President and Chief Operating Officer of Nationwide Direct and Customer Solutions, where he was in charge of direct-to-consumer sales and service, Nationwide Bank, and Nationwide Better Health. After that, he became President and Chief Operating Officer of Nationwide Retirement Plans, where he is still in charge.
Opinion: This one makes no sense, as Hilsheimer was selling it last week at $66.95 with the sale of 4750 shares at $66.95.
Name: Richard M Rieder
Position: Portfolio Manager
Transaction Date: 2022-12-28 Shares Bought: 14,850 Average Price Paid: $13.76 Cost: $199,564
Company: BlackRock Capital Allocation Trust (BCAT)
The investment goals of BlackRock Capital Allocation Trust (BCAT) (the “Trust”) are to provide total return and income through a combination of short-term capital gains, long-term capital gains, and current income. The Trust makes investments in a variety of debt and equity assets. The portfolio of the Trust will typically consist of both stock and debt securities. The Trust may, however, favor either debt securities or equity securities at any particular moment. To create current profits from option premiums and improve the Trust’s risk-adjusted returns, the Trust employs an options writing (selling) strategy.
Rick Rieder, Managing Director, is the company’s Chief Investment Officer of Global Fixed Income, Head of Fundamental Fixed Income, and Head of the Global Allocation Investment Team. He serves as the chairman of the BlackRock Investment Council. He is a member of the BlackRock Executive Sub-Committee on Investments, the Global Operating Committee, and the Global Investment Council. Mr. Rieder served as R3 Capital Partners’ President and Chief Executive Officer before joining BlackRock in 2009. He served as a member of the Federal Reserve’s Investment Advisory Committee on Financial Markets and vice chairman and member of the U.S. Treasury’s borrowing committee.
Opinion: This 9% yield by the world’s leading private equity firm puts you right in the thick of things. If you would like to take a ride into the financial equivalent of Joseph Conrad’s Heart of Darkness, this one makes sense. I, for one, am waiting for a greater conviction purchase than Mr. Rider’s most recent $200k, as he bought millions of dollars worth closer to $20. Let’s wait to see him and others at BlackRock really open up the pocketbooks before we leap into the heart of darkness with them.
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Insiders sell the 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 within 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. SECForm4 is one of the smaller ones but I like supporting Frank. He is not arrogant. He’s helpful and has great prices. He also trades on his own data so I like people that eat what they kill.
The bar is different from selling because the natural state of management is to be seller. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, with selling, we analyze 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 believing they never make mistakes. Do your own analysis. They can easily be wrong, and in many cases, maybe most cases have no more idea what the future may hold than you or me. In short, you can lose money following them. We have and we curse aloud, what were they thinking!
We like Fly on the Wall for keeping up with what events might be happening, analysts’ comments, and whatever else could be moving the stock. Dow Jones news service is an essential tool but many services pick up their feed like they do Bloomberg. For quick financial analysis, it’s hard to beat Old School Value.
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. 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
