Investing Update: Insiders Have Been Buying
What I'm buying, selling & watching
For as wild of a ride that May was, it turned out to be a flat month. The S&P 500 started the month at 4131 and ended at 4133.
The overall volatility in the stock market has been the wildest since 2008. It’s looking like June is going to be more of the same. Welcome to what a bear market roller coaster experience is like.
Bear markets can be completely draining. They’re long stretches that can just drag on and on. Sometimes you wonder if they’ll ever end.
The bear market rallies happen and then lower lows follow. It becomes a hard cycle to break. Here is what happened throughout the last two bear markets. Just look at those rallies that end up not holding. Very tough stretches to hold and stay invested through.
In the midst of a rally now that the consensus is just a bear market rally. Which looking back may be another pop and drop lower like the two charts illustrating above.
As I’ve been saying we could use some data (lower inflation) or news (Ukraine war ceasefire) which would quickly turn things around. When we talk v-shaped recoveries to the upside, these are the things that can reverse sentiment in an instant.
The stock market can’t always go up. We just have to maintain the discipline to stay invested through stretches like this and know that there is greener grass on the horizon. Continue buying through both the good and the bad.
Insiders Have Been Buying
An indicator that has long been followed is what are the insiders at companies are doing. If a company’s board members and other insiders are buying up shares that usually is one of the best bullish indicators about the future of a company. It’s not perfect and not always correct. Like all the indicators and information that goes into a stock, it’s a slice of what someone may consider when buying or adding to a stock.
Recent data is showing that insider buying is way up. They’ve been buying this dip. It has actually hit the highest level of the past few years. Could this be something that signals that this bear market rally actually has legs and could try to crawl our way out of this? It remains to be seen.
Trailing P/E Ratio Falls Below 5 & 10-Year Average
The measurement most often used to tell whether a stock or the stock market overall is cheap or expensive is the P/E (Price-to-Earnings) ratio.
We saw the P/E ratio peak at around 35 near the market top. Since that multi-year high, that number has crashed lower. It has crashed so far that we are now even below both the 5-year and 10-year S&P 500 trailing 12 month ratios.
Sitting at around 18 now you can’t say the market is expensive. On the flip side is it cheap? At the pandemic crash low we saw the trailing P/E around 15.
We’ve seen a reset in valuations. When we’re talking about nearing the March 2020 pandemic levels, the conversation about stocks being oversold and on sale starts again.
A Question Answered
I’d like to buy some of the high growth tech stocks. I feel they’ve been oversold but don’t feel comfortable or know enough about them to buy individual company stocks. How would you go about doing that?
This group you’re referring to has definitely been completely hammered. Many of the popular names, IPOs and SPACs have seen selloffs of 70-80% plus. The scary part about seeing this far of a fall is that some of these companies won’t be able to come back from it. Some will but there are others that won’t. The approach to getting exposure to them through an ETF or mutual is a better idea than trying to decide which of the individual companies will come back versus those that will not.
This is the area where very high volatility comes from. The way that I play this is through a mutual fund. I own the T. Rowe Price New Horizons Fund (PRNHX). I’ve owned this for as long as I’ve been investing. It was the first fund that I ever bought at age 18.
Ways to get exposure to technology and higher growth stocks is to consider the following funds.
Technology Select Sector SPDR (XLK)
Vanguard Information Technology (VGT)
Baron Partners (BPTRX)
ARK Innovation (ARKK)
How to determine which you like best may entail looking at each fund’s individual holdings. What are their top 10 holdings? Do you want exposure to these stocks? What are their sector weightings? What are the expense ratios? Compare and do your research to see what fits best for you.
Moves I’ve Made
Tesla (TSLA) I added to my Tesla position. After it broke below $700 I needed to add to it. The selloff was completely overdone and I decided I was going to sell another holding to move more money into Tesla.
Sometimes when your highest conviction names get hammered too much, you have to step in and buy more. If you truly believe in a company long term and plan on holding it long term these are the times where you add more. So I did just that.
Peloton (PTON) To fund my purchase of buying more Tesla I closed my position in Peloton. After Peloton bounced higher I decided it was a good time to sell and move those funds into Tesla. Like I said above Tesla was too cheap. The turnaround at Peloton is going to take multiple quarters.
What I’m Watching
After market close on 5/25 Nvidia and Snowflake reported earnings. They both sold off hard after hours and at the open on 5/26 they were deep in the red. But they both ended the day in the green. That formed a bit of a bullish signal to me. Since then the market is up 3.27%.
Looking back that was a bounce that has held and gone higher. On Friday June 3rd, the job’s number showed the addition of 390,000 jobs to go along with very low 3.6% unemployment rate. In the last three months that is around roughly 1.2 million jobs that have been added. That is not apart of a recessionary environment. I’m moving farther and farther away from “we’re in or there is a near oncoming recession,” contrary to what you hear in the media.
This coming Friday (June 10th) will be very important. That is when we get the next inflation read. If we see a trend down in the CPI inflation data it would possibly give legs to a climb higher and turn what is thought of as a bear market rally into a push out of a bear market.
Don’t discount that. We would get confirmation of both an inflation peak as well as the decrease. A v-shaped recovery and a rip higher is not really on anyone’s playbook right now. Everyone keeps resorting to the bad news. Yes there could be more. But there also could be some good news that would be welcomed and unexpected. We know what happens when good news surprises the market.
Thank you for reading! If you enjoyed Spilled Coffee, please subscribe and/or give a gift subscription for others.
Spilled Coffee grows through word of mouth. Please consider sharing this post with someone who might appreciate it.
Disclaimer: This is not investment advice. You should not treat any opinion expressed as a specific inducement to make a particular purchase, investment or follow a particular strategy, but only as an expression of an opinion.