The smarter machines and algorithms become, the smarter you must become. To do this, I often say, look where others are not looking. This is smart investing. One of the areas I am big on, and I see frequent mistakes made, is the interpretation of insider trading (company management trading). It’s an area of the market that is neglected and the smarter investors I know always look at what the management is doing with their stock in addition to fundamental analysis. After all, if the management doesn’t have direction, do you think you are going to?
I monitor insider trading more carefully than most and I have an extensive watchlist of stocks under various criteria. I was alerted to a particular purchase of his own stock by an individual from Dollar General (DG). In early October, the Chief Information Officer of the firm made his first purchase ever. The stock had been on a precipitous decline as well as being back at 2022 lows and I was looking for an excuse to buy it. The stock was trading at a PE multiple of 13.1x FY2023E and 12.3x FY2024E. This was almost a 41% discount on the last 3 years of the average PE multiple. After looking at his background and this very unusual first-time buy, coupled with the valuation, I suspected that this was the catalyst I needed. Two weeks later, the firm replaced the CEO and announced a restructuring. I was sitting on an 18% gain. I believe the stock can still go higher. The CIO was a catalyst buyer and knew what was going to happen.
