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The guest commentary below was written by Jesse Felder of The Felder Report. 

Corporate Insiders Are Betting On A Reversal of Value And Growth - Bull and bear extra cartoon  5

Every day I go through all of the insider buying and selling filed with the SEC the day before. (InsideArbitrage.com and OpenInsider.com are my two favorite sources for this information.) It’s mainly a way for me to try to find good investment ideas as nobody knows the true value of a company’s shares better than those running it.

There are times, though, when it helps me to see larger trends emerging in real time. For example, last month I noted on twitter there was a great deal of insider selling across a large number of different companies in different industries. Since that time stocks have fallen into the fastest correction in history, so I guess that helps to validate the value of this data.

Earlier today, I noted on twitter that much of this selling has now dried up and that insider buying has expanded in both volume (dollar amounts) and in breadth (number of companies). This would seem to be a very bullish signal.

However, when you look at the companies and sectors where the buying is concentrated they skew heavily towards those that now fall into the “value” category rather than the “growth” one. This would suggest that, rather than making a call on the broad market, insiders seem to be betting on a reversal in the long-standing downtrend in the value-to-growth ratio.

Corporate Insiders Are Betting On A Reversal of Value And Growth - Screen Shot 2020 03 11 at 9.19.19 AM

While the chart above plots just the past few years, this trend really began back in 2007. For more than a decade, value stocks have underperformed growth, marking one of the most difficult times for value investors in history.

Corporate Insiders Are Betting On A Reversal of Value And Growth - Screen Shot 2020 03 11 at 12.14.04 PM

From a technical perspective, though, it appears this trend is now ripe for reversal. On the shorter-term time frame, this downtrend was broken last fall. The ratio has now fallen back to test the trend line from above. A reversal higher here would be very positive for long-suffering value investors and insiders seem to be backing that play in a big way.

EDITOR'S NOTE

This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.