October 6, 2022

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Insiders are dumping stocks on a massive scale

Insiders are dumping stocks on a massive scale

Over the years, Finansavisen’s in-house portfolio has performed significantly better than the benchmark Oslo Stock Exchange. The portfolio is based on companies that report on the most important “inside purchases”. The underlying assumption is that the stock has a particularly high upside if senior managers, directors and/or major shareholders suddenly invest large portions of their money held in it.

Also in the USA, excess returns following insider buying is a well known phenomenon. For example, “insiders” stockpiled stocks around the bottom of the stock market in March 2020. But last month, the willingness to invest in their company has been very weak. According to Bloomberg, 2,150 senior executives have given up shares in their employer, more than at any time since November last year. The ratio between sales and purchases was the highest since February.

Analysts have also become more pessimistic. Average operating margin estimates for US companies listed in the third quarter have fallen in the past eight weeks from 16.9 to 16.1 percent. Meanwhile, CNN’s “Fear & Greed” Index shows that fear has once again returned to the dominant mindset among investors in the world’s largest economy.

Friday’s announcement that Russia would halt gas supplies to the European Union, apparently in response to increasingly tough sanctions in the region, did not help the mood, and on Monday afternoon, German and Italian stock indexes fell about 2 percent. Auto manufacturers have done particularly badly. Among other things, BMW and Volkswagen suffered a 3 percent price drop, while France’s Renault lost nearly 5 percent. Reduced access to gas also led to the collapse of the German electric company Uniper. At 4 o’clock, the price was down more than 10 percent, meaning nearly 90 percent of the market value had evaporated since the start of the year.

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For US investors, the price drop was even more impactful, as a result of the euro’s brutal weakness against their currency. At one point on Monday, the euro only cost $0.9879, and in early February, before the Ukraine war and sanctions, the figure was well above $1.14.