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I keep seeing the same pattern, and it's driving me nuts. |
Big banks publish their "best ideas" lists. Analysts upgrade stocks to "buy." The financial media runs headlines about "oversold opportunities." And retail investors pile in, thinking they're getting institutional-quality advice. |
But here's what nobody tells you: the executives at these "cheap" companies aren't buying their own stock. |
The Numbers Don't Lie |
Two weeks ago, JP Morgan published their latest buy list. All the usual suspects - tech names that had gotten beaten down, consumer defensives, some software plays. The pitch was simple: these stocks had fallen below their fundamentals and represented justified purchases. |
Sounds reasonable, right? These are smart people with access to better research than most of us will ever see. |
So I did what I always do: I checked what the insiders were actually doing with their money. |
Out of JP Morgan's entire "undervalued" list, only eight companies had any insider buying at all in the past month. Eight. Out of dozens of recommendations. |
But it gets worse. When I dug deeper, only three of those eight companies had purchases from people who actually matter - CEOs and CFOs. The people who know the business better than anyone. |
Take Datadog, one of the names on that JP Morgan list. According to the analysts, it's a software company trading below its fundamentals. A clear buy opportunity. |
Meanwhile, the company's CTO just sold $10 million in shares. Not $10,000. Ten million dollars. |
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And it's not just him. The insider selling-to-buying ratio at Datadog is completely lopsided. These aren't scheduled sales or diversification moves. These are executives who know their business intimately, and they're heading for the exits while Wall Street tells you to buy. |
Why This Actually Matters |
Executives get paid in their own stock. They live and breathe their companies' prospects every single day. They see the quarterly numbers before anyone else. They know about competitive threats, margin pressure, and pipeline issues months before they show up in earnings reports. |
When these people choose not to buy their own stock - especially when it's supposedly "cheap" - that tells you something fundamental about the business that no analyst report will capture. |
It's not that executives never sell. They have mortgages and kids' college tuition like everyone else. But when there's zero buying activity from insiders while Wall Street pounds the table about value, that's a red flag you can't ignore. |
This isn't just about individual stocks. |
It's about understanding how the game really works. Institutional recommendations often serve institutional needs, not yours. Maybe they need to move inventory. Maybe they're trying to create liquidity for their own positions. Maybe they genuinely believe in the long-term story but know about near-term headwinds you don't. |
But insider buying? That's pure. When a CEO puts their own money at risk, they're betting on results they can actually influence. |
Here's the rule that's saved me from countless bad trades: If the people running the company won't buy the stock, why should I? |
It doesn't matter how compelling the analyst presentation is. It doesn't matter how "oversold" the technical indicators look. It doesn't matter how reasonable the valuation metrics seem. The executives know something you don't. And they're voting with their wallets. |
Before you buy any stock that's being heavily promoted, check insider activity over the past 3-6 months. Look specifically for CEO and CFO purchases, not just any insider activity. Compare the selling-to-buying ratio. If there's zero insider buying while analysts are upgrading, ask yourself why. |
This isn't about being paranoid. |
It's about recognizing that information flows differently to different people. And the people with the best information - the executives - are telling you something important with their actions. |
Wall Street's job isn't to make you money. Their job is to facilitate transactions and manage their own risk. Sometimes those interests align with yours. Often, they don't. |
But insider buying? That's executives betting their own money on their own companies. It's the purest signal you can get in markets full of noise. |
So the next time you see a "must buy" recommendation, don't ask whether the analysts are right. Ask whether the executives agree. Their wallets will tell you everything you need to know. |
Stay Positive, |
Garrett Baldwin |
P.S. Want to know where else money is flowing? Check out Brandon Chapman today at 2 PM ET, as he reveals his #1 tool for spotting options flow. |
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