I’ve been actively invested with stock markets for over 30 years and I’ve made plenty of mistakes in that time. With mistakes though comes learning and one of the most important (and painful) lessons I’ve picked up over the years is to beware of Insider Trading which I believe is rife in modern markets. There is always someone out there who knows more about your favorite stock and so you are nearly always at a disadvantage to them – especially if it’s a low capitalization penny stock which can make big price moves on low volumes. However, is there a way to mitigate the risk of falling victim to insider trading or are there at least signs you can look for? I think so…
When it comes to politicians or powerful people in any organization I always watch what they do rather than just believe what they say. Money talks and if you follow the money you can get to the truth quicker than watching some talking head on mainstream TV or a Youtube channel. When it comes to buying shares in a company that means I am watching what the executives of that company are doing. So I look at whether they have invested in the company themselves. Are they quietly selling off shares for themselves or accumulating more? I think this can be a big “Tell” about whether they actually believe in what they are doing. If they are buying their own shares then that suggests confidence in the company. Maybe they know something that nobody else does...or maybe there is another reason.
This week news broke that one of the worlds richest men, Elon Musk, just purchased $1 Billion worth of his own Tesla shares. There are a few stories about this, such as this one and in this instance there is a bit more to the story than just an executive buying his own shares. I won’t go into all that because plenty has been written and you can just read up about it. What I wanted to point out was the stockmarkets reaction to the news…
In the last few trading days the price of Tesla Stock (TSLA) has surged from about $350 to hit a high of about $430. That’s almost 23% in 3 trading sessions. Maybe that’s not a lot for crypto people who are used to volatility or a penny stock that can roller-coaster, but Tesla is one of the biggest companies in the world with a Market Capitalization of about $1.3 Trillion. So a quick back-of-the-envelope calculation suggests that Musk investing $1 Billion has added around $250 Billion in Market Capitalization. Now, sure, there may be other factors involved here but it sure seems like this executive investing in his own company is being seen as incredibly bullish by the rest of the market.
This might be a bit of an extreme example, but it IS a good example of what I am talking about. As regular investors and market participants I think it's worth asking - Can we look at the investment portfolio of executives as a good guide to what’s really going on at these companies? We aren’t insiders and we don’t have all the information...but they just might.