David Miller the is senior portfolio manager of the Catalyst Small-Cap Insider Buying Fund. This Fund, as the name suggests, uses a strategy that tracks corporate executives buying and selling their own company stock on the open market, with a focus on small-caps. Below is an excerpt from our new small cap exclusive quarterly magazine.
The fund only invests in companies where corporate insiders (CEO, CFO, directors, etc.) are purchasing their own company stock on the open market. This approach gives the fund an information advantage as very small companies tend to have limited to no research coverage or news flow. The absence of information to the market creates potential buying opportunities that corporate insiders can identify. Below is an excerpt from our new small cap exclusive quarterly magazine.
Interview With: David Miller — Small Cap Insider Buying Fund
Why do you think stocks with insider buying tend to outperform the market?
The top executives at a firm tend to be risk averse when it comes to buying their own company stock. These executives already have their pension, salary, stock options, and restricted stock tied up at their firm. So, when they buy even more stock, it is an unyielding statement that they believe in the future of their company. It is an even stronger statement when you see several executives all buying in a big way at the same time. Why would an executive double down on their company stock unless they thought it had good reason to outperform the market?
How do you separate those managers just buying to prop up the share price and those doing meaningful buying?
We only focus on open market insider buying activity to ensure that the executives at a firm are buying because they believe their stock will go up. The fund excludes insider buying and selling activity driven by stock option compensation plans, automated transaction plans, and restricted stock. We look for purchases that are large enough to make a real impact on the executive’s personal finances.
Where do you get your ideas from?
I scour the filings that are made available from the Securities and Exchange Commission Website. Every top executive at every publicly listed US company is required legally to file all of their transactions of their company stock with the SEC in a maximum of 48 hours following their transactions. I am looking for stocks that exhibit at least 3 top executives buying at least 10,000 shares within a narrow period. These companies that are subject to extreme insider buying have historically done the best.
What’s next?
The rest of this interview is featured in the next issue of Hidden Value Stocks, ValueWalk’s exclusive quarterly magazine.
The next issue of this exclusive publication will be released on March 15 contains interviews with three impressive small cap hedge fund managers as well as for stock tips.
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