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Corporate insider stock buying ‘ramping down a bit,’ researcher says

VerityData Director of Research Ben Silverman joins Yahoo Finance Live to discuss corporate insider stock buying, what it signals about investor confidence, and the outlook for the stock market.

Video Transcript

[MUSIC PLAYING]

- Insider stock buying has hit the highest level since March 2020, with more than 600 buyers at Russell 2000 companies in the month of May alone. Here for more on this is Ben Silverman, director of research at VerityData. Good to see you here, Ben. So May is done. The markets are off their lows. What are you seeing-- what are you seeing corporate insiders doing so far this month?

BEN SILVERMAN: Thanks for having me on, Brian. So May was great. June is off to a slow start. We're seeing a-- buying ramping down a bit. So that's a little concerning right now because we liked the May numbers a lot and we wanted to see that momentum from insiders continue. But there does seem to be, after Memorial Day, just a little pullback in the buying volume.

- So if we take a step back, Ben-- it's Julie here-- what can we-- what do we make of this, right? When you look at these kinds of patterns over time and you see a surge in insider buying, even if it's moderating a little bit right now, what does that tell us about what comes next in the market? Is there a predictive power here?

BEN SILVERMAN: Insiders have been really fabulous at calling market bottoms as a group. When there's a massive insider buying, which we saw in November 2008, which was a false bottom, but that's when more stocks hit all-time lows. Then in March 2009, we also saw a rush in insider buying. So this is the great financial crisis. We saw it in August 2011, during the S&P downgrade, when the S&P downgraded the US debt.

Saw it in January, February 2016, when China stocks and then some things in the financial sector brought the market in. And then we saw it in the pandemic. We saw these giant volumes of insider buying. Right? And so we saw something approaching that in May. So that's a good sign. We-- again, we wanted that momentum to continue. We've still got a couple of weeks left here to see some buying activity pick up, especially on days like today, where you have some sort of soft market activity.

- I mean, it comes as we've already heard from JPMorgan's Jamie Dimon saying that there's a hurricane on the horizon. You've got Elon Musk saying that he was feeling I think, quote, not super good. So all of that considered, is the insider buying more so to shore up the confidence of some of the investors that are out there looking across the companies and still trying to figure out if there is another dip that they should be buying on or if there is an actual bottom that's been set in?

BEN SILVERMAN: Well, that's a good question. There's definitely some of what we call performative buying out there. Look at Howard Schultz at Starbucks. He comes in, there's a lot of issues there. He bought a bunch of stock. That's the kind of thing that, to me, screams public relations, investor relations more than anything.

When we get down into the nitty gritty and we start seeing the buying at several hundred companies and start digging in, these are people who believe that their stocks are undervalued or oversold. They have an informational edge as board members or as executives, and they're looking out in the long term. Insiders are inherently long-term investors. They're not traders. So what they're looking at is the health of the business now. They're extrapolating out what they think the business will do, even in the face of a recessionary environment and high inflation.

- Ben, besides Howard Schultz, are there other big-names CEOs or executives that you see buying stock right now?

BEN SILVERMAN: You know, there was the CEO of Uber. There was Shop-- CEOs of Shopify and Spotify. We tend to-- CEOs are great. We want to follow them. That's where you get a little more of the PR buying. And really, what makes for us, you know, and what we talk to our clients about, our asset manager clients, is we look for people with strong track records.

And we look for people who have a really good idea of what their company's valuation should be. So companies like Carnival Cruise, Avis Budget, you know, even GM. We saw the CFO of GM one of the buyers, and a director at Morgan Stanley. So there's a lot of companies where maybe it's not the CEOs buying, but it's people who have good track records, who have been smart buyers in the past. And that's what we want to key in on.