One purchase for every 5 sales: A possible explanation for the slump in insider investments on Wall Street
Data on insider purchases in the US market are at a low. It seems that while stock prices are hitting records, the people who know the companies from the inside show very little enthusiasm for buying their shares. A possible conclusion: you don't have to stay invested at any cost.
Countless factors can boost or drag down a stock, but the people who know a company best are those who manage it. This column tracks insider moves in companies traded on Wall Street. The author is Yoav Sefer, CEO of SmartLenses, a platform for decoding insider trading in US public companies, which advises investment managers on identifying unique investment ideas.
The US stock market is again near all-time highs. Volatility is low, risk appetite is high, and after years where every significant decline turned out to be a buying opportunity, a whole generation of investors struggles to remember a market where prices don't quickly return to their peak.
In such an environment, finding an attractive investment feels like looking for Nemo in the Pacific Ocean.
What to do when you find nothing? Warren Buffett once said to be fearful when others are greedy and greedy when others are fearful. Most investors love the second half, but the first part is discussed much less.
Being greedy while everyone is afraid sounds great in retrospect: buying excellent companies after a 30%–50% crash is how some of the greatest fortunes were built. But there is one essential matter: you need to reach that moment with cash.
I follow insider transactions closely because they tend to behave differently from the herd. Managers and directors sell shares for reasons unrelated to company value: taxes, diversification, liquidity. Therefore, a single sale is rarely interesting. But the activity of thousands of insiders provides a significant picture.
5.5 sales for every purchase
According to an index by Prof. Nejat Seyhun of the University of Michigan, in July, only 14.8% of companies with insider activity showed net purchases—the lowest rate in at least 21 years. This is a ratio of one buyer for every seven sellers.
In large companies, the picture was even more extreme: only about 3.2% showed net purchases.
Other indices show similar trends. For example, Washington Service counted 2,260 insider sale events against 543 purchases early this year—a ratio of over 4 to 1. This doesn't mean insiders know a crash is coming, but while stock prices signal enthusiasm, those who know the companies from the inside show little enthusiasm for buying their own shares. This gap is worth noting.
In my previous column, I discussed the US housing sector, where the investment cycle is on its painful side—capital has left, sentiment has deteriorated, and stocks have fallen sharply. But in most other parts of the market, the picture is the opposite: years of gains have attracted capital, prices have risen, and investors continue to chase high-performing sectors. As prices rise, the fear of losing money is replaced by the fear of being left out.
It is okay not to be invested
Since the 2009 financial crisis, the US market has created wealth at an extraordinary pace. Despite the 2020 and 2022 downturns, recoveries were fast, reinforcing the belief that every decline is a buying opportunity. A generation of investors in Bitcoin and trading apps has grown, where successes spread faster than failures.
Prolonged success becomes a habit, and habits become expectations. A dangerous bias is the feeling that one must always do something in the market: if tech is expensive, move to financials; if the US is expensive, move elsewhere.
I suggest another option: don't buy. Cash is often seen as a useless asset, but that is a wrong perspective. Cash is an option that allows an investor to act quickly when prices change. It is not necessarily a bet that the market will fall, but an investment in the possibility that a better opportunity will arrive.
Keep your powder dry
Americans love the expression "keep your powder dry." I find it hard to think of a time when this is more appropriate. I have no idea if the market will fall tomorrow or in two years, and insider data cannot answer that. But they do say something else: when the market trades near highs and only a tiny fraction of companies show net insider purchases, perhaps there is no need to lower our requirements just to stay invested.
Sometimes investment discipline is not about what you buy, but the ability to wait. If we return to Buffett's famous saying, it is better to internalize the first part—"be fearful when others are greedy"—precisely when the market is at a peak. Because to be greedy on the day others are afraid, you must first ensure you have something left to buy with.
