Insider alpha in 2020

Jason wrote a fantastic post detailing the extreme losses and pessimism in the energy sector. One of the interesting things to note here is that there has been relatively little corporate insider buying in the energy space over the past few weeks and months. This is a little unexpected, given that insiders are typically better at trading their own stocks than the Average Joe, and that insiders tend to buy when their stock prices fall.

 Several insiders in oil majors bought their stocks in late-February, just before energy stocks truly collapsed. Perhaps these insiders are still licking their wounds from that debacle, hence why they are hesitant to purchase stocks now.

With that being said, we've been working on some corporate insider trading data. The following chart illustrates a 3 month average of the average insider buy transaction's alpha vs. the S&P 500:

As you can see, corporate insiders significantly outperformed the S&P 500 since the March 2020 crash, just as they did in 2009. This is understandable. When the world changes rapidly, corporate insiders are the first to know how macroeconomic developments are impacting their business. By the time news reaches retail traders, insiders have already acted on it. Hence, they can most quickly & accurately surmise as to which stocks will do well after markets stabilize vs. which stocks will be permanently affected.

This suggests that insider data is very useful to traders around a stock market crash. Buy stocks in a crash, and specifically buy the ones that insiders are buying.

On a sidenote, the U.S. economy continues to recover and the ISM Manufacturing Index has recovered all of its losses during this year's pandemic:

Whereas low ISM manufacturing readings typically lead to bullish outcomes for the S&P 500, high readings lead to more mixed outcomes: