You wouldn’t know it by the market action in recent weeks, but an interesting subset of investors is betting some big bucks that this bull run is far from over.
October was brutal. The market suffered its worst losses since 2011. The losses are staggering: more than $2 trillion.
I would be lying if I said that this environment doesn’t excite me just a little bit. I was lightening up my portfolio all summer in anticipation of a sell-off as we neared the midterms. In fact, I wrote to you about buying insurance against a toppy market in August a full two months before the carnage began.
Now it’s time to look for some opportunities in the wreckage, and there is no better place to look than where insiders are buying their own shares… in the face of plunging prices.
I love watching insider buying. It is one of the all-time best indicators of what people “in the know” are doing with their own cash. I’m not talking about piddling trades – I’m talking about where executives and insiders are betting a big chunk of their net worth.
In the last few weeks, insiders have been picking up speed on purchases. The big buys that have flashed across my screen are in the energy sector, the small cap biotech space, materials (think steel and infrastructure materials) and, finally, select technology.
Here is a sample list of some big insider buys.
IBM (NYSE: IBM) saw major buying after the announcement that it was buying Red Hat (NYSE: RHT) for a greater presence in cloud computing.
Encana Corporation (NYSE: ECA) continues to see big buying by a ton of insiders following the announcement of its $5 billion merger with Newfield Exploration (NYSE: NFX). There’s been buying in the oil services sector as well, in names like Schlumberger (NYSE: SLB), Basic Energy Services (NYSE: BAS) and frack sand producer U.S. Silica (NYSE: SLCA).
In the infrastructure space, there’s been buying at U.S. Steel (NYSE: X), Summit Materials (NYSE: SUM) and Caterpillar (NYSE: CAT), among many others.
Some of the buyers have invested millions of dollars, like the CEO of IBM.
It’s times like these when you need to already have made a list of stocks you want to buy when the market corrects. The reality on the ground is worse than the indices are indicating. Many blue chip companies in sectors like energy and resources are down 30% to 50% from their highs, with some companies trading at 2009 to 2011 levels.
A year ago, if I asked whether you regretted not buying shares during the Great Recession, your answer would likely have been an emphatic “YES!” Now the insiders of many companies are signaling that you may have another chance.
Some insider trades don’t come to fruition for months or even years. But in my 30 years of investing experience, insiders who buy large quantities of stock in their companies are right more often than not.