This week, many Americans received a $1,200 stimulus check from the federal government.
With a record 22 million Americans unemployed and many others struggling financially, it comes as no surprise that the majority of these funds will not see the market.
In fact, 36% of recipients will spend their stimulus checks on housing and groceries, according to CNBC.
Investing is far less appealing. When asked to rank their likelihood of using the funds for different purposes on a scale from 1 to 5, respondents to CNBC’s survey gave investing a paltry 1.77.
Even check recipients who are in more stable financial situations have cause to feel this way.
After all, our March crash was the steepest the market has ever seen – and the volatility we’ve experienced since has been brutal.
With lower levels of new funds entering Americans’ investment accounts this month, it’s become more important than ever to reassess current holdings.
It’s also time to dedicate any sideline cash from stop-triggered sales to companies that pay steady dividends or have a promising 2020 ahead.
That makes for a short list…
But one subset of investors knows just where the gold is, even in this market.
Following this “smart money” can help regular folks earn returns on par with an inside job.
Do as I Do, Not as I Say
When it comes to investing, corporate insiders who put their money where their mouths are can serve as evidence of honesty in a swarm of market gossip.
Corporate insiders include CEOs, chief financial officers and other executives who, knowing information about a company’s health before it is formally announced, buy or sell shares of its stock.
They then report their transactions to the Securities and Exchange Commission, which makes the information public.
(Neglecting to report is the difference that makes insider trading illegal.)
Following this information can help investors profit from corporate insiders’ knowledge even when sentiment looks bleakest.
For instance, the following chart breaks down the number of insider buys by sector in the week ending this past Thursday, April 16.
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This activity on the part of the “smart money” shows that there are bright spots in all corners of the market – and especially in the technology and financial sectors.
(This bullishness is even while CNN’s notorious Fear & Greed Index places us squarely in the “fear” zone.)
But broad market sentiment isn’t the only mixed messaging luring investors away from these winners…
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While many investors follow Wall Street and miss out, these companies’ top executives are pouring as much as $600,864 into each purchase.
This makes corporate insider tracking one of the best-kept secrets the stock market has to offer. It can be a lonely playing field – but a profitable one.
Furthermore, insider trading can serve as an indicator for the broader market.
Just take a look at the past several months, for example.
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This past February saw the most corporate selling, with nearly $5 billion in sales and less than $1 billion in purchases.
Our historic market tank began on February 20…
(That’s why they’re called the “smart money.”)
But this past month, we saw a resurgence in corporate buying. Insiders purchased $1.27 billion worth of their own stock, a significant shift.
This suggests that these executives expect their companies’ share prices to rebound, and it all goes to show that a bear market is not the end of the world.
We’re currently seeing some of the most dejected markets since the Great Recession, but history – and the behavior of the market’s top executives – shows that we’ll recover.
A Simple Trick to Transform Your Portfolio
Insider activity can provide invaluable intel for investors who want to get to the truth of a company’s health.
If you have time on your hands during quarantine, take a careful look at your current holdings and see if there’s been any insider movement.
You might find silence, but you might find a telltale rustle…
And the next time a stop loss is triggered on one of your positions, consider looking to insider purchasing as a buy signal.
Good investing,
Mable