Trends in Insider Activity


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Will Nasgovitz

Nasgovitz is CEO and Portfolio Manager of the Select Value and Mid Cap Value Funds and their corresponding separately managed account strategies. He also is CEO of Heartland Funds. He has 17 years of industry experience, 14 at Heartland.

Troy McGlone

McGlone, CFA, is a Research Analyst. He has 9 years of industry experience, 3 at Heartland.


Will Nasgovitz: Today we want to really amplify on one of our Principles of Value Investing™. We have 10 of them, but one that really sticks out to us is looking at capable management and insider ownership: Because we take the view if the chairman of the board, or other directors, or other officers of the company are taking their own capital and buying stock in their company, their interests are aligned with us.

So with us I have Troy McGlone, who has been with us for the last couple years, who focuses the lion’s share of his time on company-specific research, but has really upped our game when we look at the levels of insider activity across the marketplace—and what it could mean for future returns.

Thanks for joining us Troy.

Troy McGlone: Thanks, Will.

Nasgovitz: This first graphic looks at the broader activity. What stands out to you?

McGlone: This chart here:

  • The vertical bars in black would indicate the ratio of insider buying activity relative to selling activity. The higher the bar the better in our mind.
  • If you look at the horizontal line, this is kind of the long-term trend. It’s the median of the ratio. So what sticks out would be that for every buy transaction there’s typically more than three sell transactions. And so we’re looking for major changes.
  • The green line here shows the price performance on a one-year forward basis of the S&P 500—just to give you a general sense as to the trends in a broader market indice. And what sticks out is when the ratio is low, typically it’s somewhat of a contrarian indicator, when managers are buying less than their selling.
Insider Buying/Selling

Heartland Advisors Value Investing Market Insight Insider Buy vs Sell Ratio Chart

Source: FactSet Research Systems Inc. and Heartland Advisors, Inc., 6/1/2014 to 4/30/2017. Buy/Sell Ratio includes all publicly-traded U.S. companies with a market capitalization greater than $75 million and assigned a GICS sector designation. Past performance does not guarantee future results.

As an example, in 2015, the market actually struggled. So insiders weren’t very bullish on their company fundamentals relative to market expectations of the price of the companies. The market was down double digits at one point at that time.

If you fast forward to 2016, we saw this ratio spike almost 2x that longer median trend, and that was actually representative of a great buying opportunity. And the forward market performance was very strong in 2016. After a challenging start to the year, the market ended up at roughly 20%, much greater than longer-term averages.

Nasgovitz: Great context on the last couple years.

Currently the indicator, looking at total buying, isn’t very encouraging. Perhaps that endorses the view that we’re in the later innings of this bull run. We don’t make market calls. We do think it really highlights the need to dig deeper into the company specifics: What’s the catalyst for the particular company? What’s the outlook? And that really highlights the case for active management.

Looking back at last year though, it is interesting to see what stood out in terms of where we saw elevated levels of insider buying—in two sectors—and perhaps that could be a playbook for going forward, as we move through this, perhaps, later innings of the market cycle.

Late 2015, early 2016 we saw hefty buying in what two sectors?

McGlone: This chart here shows two sectors: The lines being Energy in black and Financials in red.

You’ll notice the vertical bars. That’s the same information from the first chart, just to provide some context for you.

Energy & Financials

Heartland Advisors Value Investing Market Insight Energy & Financials Chart

Source: FactSet Research Systems Inc. and Heartland Advisors, Inc., 6/1/2014 to 4/30/2017. Buy/Sell Ratio includes all publicly-traded U.S. companies with a market capitalization greater than $75 million and assigned a GICS sector designation. Past performance does not guarantee future results.

And what you’ll note is that in two instances, in those two sectors that I referred to, there are overhangs across the sectors for various reasons. We saw the insider buying activity spike to actually multiples above selling activity. That is very abnormal, and in both cases it proved to be a pretty compelling opportunity to spend time researching company fundamentals and, perhaps, adding positions to the portfolio.

Nasgovitz: That’s great perspective.

All of our 10 Principles™ are very critical as we move through the next quarters, years ahead in this stock market. But to us, perhaps this level of activity across sectors, industries, company specific in terms of buying of stock will be a leading indicator of where there will be opportunities for absolute and relative outperformance in the stock market going forward.

Thanks for tuning in, and we look forward to updating you on future capital market and economic related news as the year progresses. Take care.

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