Read Part 1, Part 2, Part 3, Part 4, Part 5 and Part 6 if you haven’t already.
As a retail investor, when it comes to investment timing, you’ll most likely be lagging behind the major investors whose access to timely information is beyond what you can fathom. But there is a simple strategy that can give you a decent fighting edge. It has nothing to do with technical analysis, AI, or the esoteric Elliott Wave Theory.
The financial media and the sell-side brokers are wrong a damning 70% of the time (if not more). Their whole idea is to fleece the retailers within legal bounds and they have been doing this for many decades but the retailers never get it. As there are always new retailers entering the markets and the bankers move on from one to the other. The situation is the same whether on New York’s Wall Street or on Mumbai’s Dalal Street.
If you are addicted to Financial TV and watch Mad Money by Jim Cramer, there is also a simple way to make money - just do the opposite of whatever Cramer says and you will be fine over time. Financial reporting can be boring most of the time and Cramer no doubt pumps in a lot of spice and animated excitement. It is fun all right but if it is not making you money then that’s costly fun. Cramer must have one of the worst track records on his recommendations.
Bank sales personnel make money by squeezing and swatting the little guy. But there is one simple strategy that they will never tell you. In fact, this is so powerful that they will make you believe that it is illegal. But there is nothing illegal about it. It is one of the most straightforward buy signals in the market.
As you know corporate officers, directors, and majority shareholders have access to all kinds of material, nonpublic information about the prospects of a company’s financial health:
the direction of sales since the last quarterly report
whether the company has gained or lost any new customers
any new expansion plans
new products and services in development
the status of any litigation against the firm
if there is any takeover interest, so on and so forth…
With all the above information not readily accessible, if the insider is buying more of his own stock, there can be one and only one reason. The stock is poised to go up!
If you are following your Indian stock investments closely, this information is available within two days of the insider buying. In the US, you can get this information from the 13F quarterly filing. One quarter is not that long if you are a long-term investor. If market conditions, in general, are negative you can even get a better entry than the insider.
From my own personal experience investing in Tanla Platforms in 2018, it was the insider buying that gave me the biggest vote of confidence. Until then, nothing much was happening at Tanla for more than 11 years. Then all of a sudden, I saw the main promoter buying more of the company shares. Very soon, he raised it from 27% to 35%. That’s a considerable increase. He also exercised warrants to increase his holdings. To top it up, there was a buyback that extinguished a good number of shares increasing further the percentage of the promoter holding.
In the US, there is still another way to make money by tweaking this principle slightly. Just watch the trades of Paul Pelosi and his wife Nancy, the Speaker of the US House of Representatives. This indicator is so consistent that there are apps and websites dedicated to tracking what the Pelosis are up to. Their recent actions must have raised a few eyebrows and I don’t know how Congress can still allow such things to happen.
The Pelosis recently exercised call options on the world’s best semiconductor company NVIDIA to purchase 20,000 shares. That’s no small change. At current prices, it’s about $3.2 mln worth of stock. While this is one of their biggest purchase of NVIDIA, they have been acquiring the stock aggressively for more than a year. It constitutes about 9% of their total equity portfolio. How do we know that? In the US, members of Congress must file reports of any stocks that they buy or sell within 45 days of the transaction.
But there’s more to it. Yesterday the US senate advanced more than $50 bio towards the CHIPS Act to boost US Semiconductor competition with China. Do you think it was a coincidence? I surely think not. The Pelosis clearly and reliably knew that the CHIPS Act was going to pass.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.