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Praveen Chawla
Articles (84) 

Insider Are Mostly Selling - Few Are Buying

The aggregate insider buy-sell indicator is at its lowest point since 2007

January 18, 2021 | About:

Gurufocus maintains a plethora of economic indicators for investors to follow. I see these indicators as a "wind-sock" which tells me "how the wind is blowing," as opposed to "what the weather is going to be tomorrow." This way, I know whether to be aggressive in my investing stance or to pull back.

Ideally, I want the wind on my back vs. on my face. This increases the odds of winning in the long run. Investing is a game of probabilities, not certainties.

One economic indicator I follow is the aggregate insider Buy-Sell indicator for the U.S. market.

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This indicator shows the aggregate sentiment among corporate insiders (i.e. Executive Officers, Directors, etc.). It is logical to think that these insiders know their businesses best and know when to buy and sell their own stock. By law, these insiders are required to report their trades. Putting all these insider buy/sell data together gives us an excellent window into the mass psychology of "smart money." The Gurufocus data for this indicator goes back to January 2004.

Right now, the buy-sell indicator is at 0.17, which is at an extraordinarily low point. This means out of 100 insiders who are active, 83 are selling and 17 are buying. Only once in early 2007 was the indicator lower. This was less than one year from the start of the financial crisis.

As recently as March 2020, the indicator spiked to 1.87, which was, in hindsight, an extraordinarily good time to buy. Anything over 1.0 means there is more insider buying than selling.

This indicator, together with other market indicators like the Buffett indicator and Shiller CAPE ratio, are flashing yellow, warning investors that now may not be the best time to buy.

Gurufocus also maintains sector-specific Insider Buy/Sell ratios. Currently, the Utilities sector is showing more buying than selling (2.3), followed by financial services (1.1). Technology is at 0.04, showing almost no insider buying, which is unsurprising.

The Utilities sector looks like good hunting grounds for long ideas for further exploration. I used the Gurufocus screener to look at the Utility sector. I found two stocks that insiders had bought recently in December: Black Hills Corp (NYSE:BKH) and Vistara Corp (VST).

I looked further into Black Hills, a regulated utility, and found a decent amount of insider buying by Directors and executive officers (including the CEO). The company pays a 3.5% dividend is rated as "fairly valued" by Gurufocus. Unlike the rest of the market, the price has not recovered yet from the recent bear market. It is a good candidate for further evaluation, in my view, especially since insiders seem most bullish on Utilities at the moment.

Disclosure: The author does not own any of the specific stocks mentioned in this article.

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About the author:

Praveen Chawla
I am a full-time investor now, investing my own money. I spent most of my working life in the pharmaceutical industry.

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