Back in April, I wrote a piece on interpreting insider buying and selling. And yes, it bears repeating that this is distinctly not the Martha Stewart kind of insider trading that will land you behind bars.
Company insiders tend to be fairly decent value investors. They don’t get every bend and twist in the stock price right, but they tend to buy the most near major market bottoms. Near tops, their buying tends to trail off.
Take a look at the recent data, courtesy of GuruFocus, which sums up insider buying across the S&P 500.
The green lines show that insiders were major buyers near the 2008-2009 bottom and again during the 2011 selloff. But ever since, they haven’t done much noteworthy trading.
That is, until you start digging deeper into the data.
The next chart shows insider trading in the real estate sector, which is dominated by real estate investment trusts. We’ll compare their trading to the iShares US Real Estate ETF (NYSEARCA: IYR), which is essentially the “who’s who” of the largest REITs by market cap.
This shows that real estate insiders were major buyers of their own stocks near the 2008-2009 bottom, the 2011 selloff and more recently during the “taper tantrum” of 2013. And interestingly, they are aggressively buying again, today.
REIT prices have been selling off due to Wall Street fears about Fed tightening and rising bond yields. Yet the insiders running America’s biggest REITs are backing up the proverbial truck to buy more.
Bear in mind, the insiders don’t always get it right.
As is often the case with value investors, they bought too early in 2007 and saw heavy losses during the meltdown. And remember that Harry is calling for a wider housing collapse.
But overall, insiders have been quite decent at calling bottoms over the past decade. And today… they’re buying. At least in real estate.
Research Analyst, Dent Research