Welcome to edition 554 of Insider Weekends. In a volatile week that saw GameStop lose more than 80% of its value and AMC dip 48%, the S&P 500 posted gains of 4.65% and the Nasdaq went up more than 6%. Insiders used this opportunity to nearly double their insider selling last week. Whether you look at the Buffett indicator of total stock market capitalization divided by GDP which stands at an all time high of nearly 190% or that the U.S. stock market represents more than 60% of world equities (Japan represented about 45% of global equities during its dual stock and real estate bubbles in the late 1980s), it is hard not to draw the same conclusion as GMO Capital’s Jeremy Grantham that we are in an epic bubble. It is also not surprising to see a cluster of insiders from the largest asset management company in the world, with $8.67 trillion in assets under management, sell stock last week.
Beyond equities, this epic bubble manifests itself in the form of GameStop shares going up several thousand percent in the span of a few weeks and then giving back most of those gains in 5 days, it manifests itself when a cryptocurrency that was created as a joke is now worth over $6 billion and through the extreme interest in trading by retail investors who are yet to experience a long bear market. The fact that an epic bubble exists does not mean it is likely to end anytime soon and there are still pockets of the market that offer opportunities. Stan Drunkenmiller discussed a “matrix” of strategies in his recent interview with Goldman Sachs and they provide good food for thought to navigate the market in the coming years.
Insider buying decreased last week with insiders purchasing $30.66 million of stock purchased compared to $30.78 million in the week prior. Selling increased significantly with insiders selling $2.19 billion of stock last week compared to $1.17 billion in the week prior.
Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 71.42. In other words, insiders sold more than 71 times as much stock as they purchased. The Sell/Buy ratio this week compares unfavorably with the prior week, when the ratio stood at 37.93.
Note: As mentioned in the first post in this series, certain industries have their preferred metrics such as same store sales for retailers, funds from operations (FFO) for REITs and revenue per available room (RevPAR) for hotels that provide a better basis for comparison than simple valuation metrics. However metrics like Price/Earnings, Price/Sales and Enterprise Value/EBITDA included below should provide a good starting point for analyzing the majority of stocks.