In another challenging week for the markets where the Nasdaq dropped nearly 4%, insiders once again significantly stepped up their insider purchases for a third week in a row. We saw an increase across all three dimensions, number of unique insiders buying shares, the number of companies with insider buying and the absolute dollar amount of purchases.
We saw 897 insiders across 381 companies purchase $324 million worth of stock last week. This compares with 584 insiders across 281 companies purchasing $188 million worth of stock in the week prior. The year-over-year comparison is even starker. During the same week in May 2021, 190 insiders from 107 companies purchased $43 million worth of stock. This brings up the question, how much of a macro signal does aggregate insider buying provide?
I use insider buying as an idea discovery tool to discover new companies or rediscover companies that may have fallen off my radar. I also use the aggregate data when I see extreme moves like we saw in March 2020 where insider buying surpassed insider selling for the first time in over a decade. While that has not occurred in recent weeks, the pace of insider buying is certainly elevated. The March 2020 situation was unique because of the rapid drop in markets in a matter of days and the unprecedented stimulus measures that were undertaken by governments and central banks across the globe. This bear market fells like a slow burn variety reminiscent of the 2001-2003 bear market.
Insiders are often early and if that is the case, we still have a ways to go before this bear is done. Investors that subscribe to a momentum strategy and pushed stocks up well beyond their intrinsic value are likely to do the same in the other direction. Mean reversion rarely stops at the mean. Insiders did step up their insider buying significantly in Q4 2008 and the first months of 2009 before the March 2009 bottom during the Great Recession following the bursting of the real estate bubble. This implies the optimal approach would be to add to existing positions or start new positions very gradually and spread trades out over weeks or months at risk of missing the first leg of the eventual rebound.
Getting to the specifics of the insider purchases this week, the top 5 list below barely scratches the surface. In a continuation of the trend we have been seeing, insiders of high growth companies have started buying stock and some of these companies like Doximity (DOCS) are also buying back shares. We wrote about Doximity in an article for our Broken Growth series on Seeking Alpha on Friday. It was interesting to see the co-founder of Coinbase (COIN) purchase shares of the company through the venture capital firm he co-founded. COIN is down more than 73% this year and was one of the few high growth companies that until recently, was profitable on a GAAP basis. That changed in Q1 2022 when the company reported its first quarterly loss in more than 8 quarters. The loss was driven by a decline in transaction volume in Q1 2022 on account of a drop in the value of cryptocurrencies in January 2022. The market was also spooked by a new risk disclosure by the company that appeared to indicate that in the event of a corporate bankruptcy, customer assets could be at risk. The CEO went on to say that while this was possible, it was unlikely that a court would “consider customer assets as part of the company in bankruptcy proceedings”.