Following insider behavior closely was not a very successful strategy last year. They got a lot of things wrong. Not too surprising when you look closely at it. Insiders may know their companies far better than anyone else, but their macro crystal ball might not be better than yours or mine.
Last year had two black swan events, a proxy war between the West and Russia over the invasion of Ukraine and rapidly rising interest rates. The investment strategy that shined last year was global macro. After many years of relative underperformance global macro rose to the top. Getting these big bets right will be key again this year.
There were a handful of notable insider buys. All of these trades make sense.
Name: William R Shepard
Position: Director
Transaction Date: 2022-12-28 Shares Bought: 1,601 Average Price Paid: $174.49 Cost: $279,346.0
Company: Cme Group Inc. (CME)
CME was established as a non-profit company in 1898. It founded CME Clearing in 1919, which is now part of CME. By trading futures, options, cash, and over-the-counter products, CME Group enables market participants worldwide to manage risk inside and across numerous asset classes. CME Group offers primary price discovery and referential pricing information to clients in listed and cash products via its market data in various forms, including real-time, historical, and derived data. CME Group provides market education services to clients via industry-leading research and analytics solutions. CME Group exchanges provide the most comprehensive selection of global benchmark goods, including interest rates, equities indexes, foreign currency, agricultural commodities, energy, and metals. The company also provides cash and repo fixed-income trading via BrokerTec and cash and OTC FX trading through EBS.
Mr. Shepard has been a CME member for almost 45 years. He previously served as the Second Vice Chairman from 2002 until 2007. Mr. Shepard formed Shepard International, Inc., a futures commission merchant, and also acts as its president. Mr. Shepard serves as the clearing house committee’s chairman. William R. Shepard formed Shepard International, Inc. He was formerly employed as a Director at Chicago Mercantile Exchange, Inc.
Opinion: Monopolies are good to own.
Name: Michael T. Kerr
Position: Director
Transaction Date: 2023-01-12 Shares Bought: 20,000 Average Price Paid: $130.49 Cost: $2,609,854.00
Company: Eog Resources Inc (EOG)
EOG Resources, Inc., a Delaware corporation founded in 1985, explores for, develops, produces, and markets crude oil, natural gas liquids, and natural gas primarily in major producing basins in the United States of America, the Republic of Trinidad and Tobago, and, on occasion, other international areas. EOG’s activities are entirely focused on crude oil and natural gas exploration and production. The business strategy of EOG aims to optimize the rate of return on capital invested by managing operational and capital expenses and maximizing reserve recoveries. EOG is focused on innovation and the cost-effective application of sophisticated technology connected with three-dimensional seismic and microseismic data, the creation of reservoir simulation models, and the deployment of better horizontal drilling equipment and completion technologies.
Kerr has over 36 years of financial expertise, 35 of which were spent with Capital Group, the parent company of American Funds® and one of the world’s oldest and biggest investment management firms. Kerr has managed various funds as an equities portfolio manager at Capital Group after previously covering global oil and gas businesses and U.S. utilities as an analyst. Kerr will retire from Capital Group on October 1, 2020. Before joining Capital Group, Kerr worked as an exploratory geophysicist for Cities Service Company. He is on the boards of Kerry Group Plc, and EOG Resources, Inc. Mr. Kerr formerly worked at Cities Service Co. as a Principal. Harvard University provided him with an undergraduate degree as well as an MBA.
Opinion: Blue Chip oil and gas play. Possibly future major and likely acquisition target by a major.
Name: Francis S Blake
Position: Director
Transaction Date: 2023-01-18 Shares Bought: 12,880 Average Price Paid: $38.58 Cost: $496,904.00
Company: Delta Air Lines Inc. (DAL)
Delta Air Lines Inc, a worldwide airline established in the United States, connects consumers over a vast global network. Delta Air Lines started repairing the network in 2021, as travel restrictions were relaxed and immunization programs were more widely available domestically and internationally. The domestic network is based in Atlanta, Minneapolis-St, and Paul, Detroit, and Salt Lake City as the main centers. Core hubs have a high local passenger share, a high penetration of Delta customers, a competitive cost position, and good profitability. Strong coastal hub locations are supplemented by core hub positions in Boston, Los Angeles, New York-LaGuardia, New York-JFK, and Seattle. Coastal hubs facilitate development in luxury goods and worldwide service by providing a strong presence in significant revenue marketplaces.
Mr. Blake serves as the non-executive Chairman of Delta’s Board of Directors. He served as Delta’s lead director from May 2016 to October 2016. He was The Home Depot’s Chairman and Chief Executive Officer from 2007 to November 2014, then as Chairman of the Board of Directors until his retirement in February 2015. He formerly served as The Home Depot’s Vice Chairman of the Board of Directors and Executive Vice President. He formerly served as the deputy secretary of the United States Department of Energy and in a range of senior roles at General Electric Company, including Senior Vice President, Corporate Business Development, where he was in charge of all global mergers, acquisitions, and dispositions. Mr. Blake is also a member of the Macy’s, Inc. board of directors.
Opinion: #1 Domestic airline trading below 2017 price levels in the midst of a pandemic-ending travel boom.
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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
