FINANCIAL ADVISOR INSIGHTS: Corporate Insiders Are Dumping Their Shares

FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.

Corporate Insiders Are Decidedly Bearish Now (MarketWatch)

Corporate insiders are now aggressively selling their shares, which is worrisome because such individuals—CEOs, directors, the largest shareholders, probably know more about their companies’ prospects than the rest of the world.

An insider indicator calculated by the Vickers Weekly Insider Report said that on average, insiders were selling more than nine shares of their firms’ stock for every one that they were buying.

The last time the sell-to-buy ratio was so high was back in July 2011, just before the debt ceiling debate. Soon after, the U.S. Treasury’s credit rating was downgraded and the Dow 30 lost some 2,000 points.

Large-Cap Stocks Still Popular, Despite Run-Up (The Wall St. Journal)

Even though most large-cap stocks have recently risen to post-crisis highs, it hasn’t made them any less popular among financial advisors. Most don’t plan to trim their exposure to these stocks.

“We have a tactical overweight recommendation on domestic and emerging-market large-caps,” Darrell Cronk of Wells Fargo Private Bank & Co doesn’t think valuations are stretched, told the WSJ. He added, “there’s always room for the market to take a pause or pull back slightly.”

Investors shouldn’t avoid large-cap mutual funds simply based on the data, Laura Lallos, senior analyst at Morningstar told the WSJ.  But some may want to put their money into an index fund or may prefer to invest with large-cap fund managers who seek out undervalued stocks.

Uncertainty Is Good For Stock Valuations (Richard Bernstein Advisors)

Uncertainty remains high as Washington deals with the sequester, the debt ceiling, etc.  But Richard Bernstein, CEO of Richard Bernstein Advisors, says that this also means that equities are more attractively valued, which presents investors with good opportunities.

“Has there ever been a time in US stock market history when investors were “certain” and equities were undervalued? We doubt it,” he wrote in a note, “The S&P 500 is presently discounting 5-6% inflation for the next twelve months despite that inflation is currently less than 2%. This shows the level of fear among investors, but also shows to us the level of opportunity.”

FINRA Proposes Reducing Trade Report Time (Bloomberg)

Currently, brokerages have to report all the equity trades that they make within 30 seconds of conducting them.  But now, the Financial Industry Regulatory Authority (FINRA) is proposing a change in this rule that would this reporting time down to 10 seconds. This would help trade data reflect the current market more accurately.

“More than 99 per cent of transactions executed by brokers away from the exchanges already report within 10 seconds, said the group that oversees 4,300 brokerages.”

Stock Picking Is A Waste Of Time (Consuelo Mack’s Wealth Track)

Market volatility has become so extreme that investors should spend far more of their energy focused on managing risk than gaming returns, said Andrew Lo, MIT’s star finance professor, in an interview on Consuelo Mack’s “Wealth Track.”

“To be passive on the alpha side, meaning you’re not trying to look for great stocks, not going to try do do stock picking, you’re going to be passive about investing in asset classes; but at the same time, you can also be active in risk management,” said Lo.

The best way execute his plan is to use managed futures that invest across the widest variety of assets, in addition to stocks, he said.

The Commodities Bull Market Is Just Beginning (Templeton Emerging Markets Group)

The long-term emerging markets demand for commodities is likely to keep growing, particularly in areas such infrastructure construction and the energy sector, said Templeton Emerging Markets Group’s CEO Mark Mobius, in a note.

“The supply situation is of particular concern because many natural resources are becoming harder to find and extract, and in some countries, there are added constraints from protectionist policies,” he said, “We believe the end result of these developments, which we’ve seen echoed in other mining regions around the world, could be potential shortages of key minerals and metals, which can lead to higher prices.”

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