When it comes to my equity investments, especially in my income portfolio, I love only one thing more than falling prices (falling prices because they allow me to buy more stock at a lower price): Insider purchases. For some investors, insider purchases do not have an impact on their investment decisions, other investors like to think that they can invest alongside Chief Executive Officers, large shareholders or company founders who naturally know a little more. Company insiders, usually executives, are assumed to have substantial information advantages and, therefore, are in a position to judge the business prospects of the company better than outsiders such as analysts or investors who largely rely on publicly available information for their investment decisions. Ultimately, so the expectation, mirroring the purchase and sale decisions of company insiders should lead to superior investment results.
But insider purchases do much more than just indicate above-average return potential: They align executive interests with the interests of shareholders. This can make a massive difference in how a publicly listed company is being run and what performance is being achieved. Asymmetric information, that is, the information advantage insiders have over regular investors, can be used for purposes other than serving the shareholder, for instance empire building.
As a long-term investor determined to build sustainable wealth through recurring income and capital appreciation, I can not imagine a more comforting vote of assurance, than having a Chief Executive Officer/billionaire/company founder on my side. Think about it: The stock market practically offers you the opportunity to invest alongside one of the leading industry figures with an impressive track record. I cannot imagine a billionaire knocking at people's doors and asking them to be his co-investor. But that's exactly what the stock market offers: Investing, sometimes even at better prices, alongside billionaires and Chief Executive Officers who also have a vested interest in the success of their business -- now, management and shareholder interests are really aligned.
In this particular case, Richard Kinder, Chief Executive Officer and Chairman of Kinder Morgan Energy Partners (NYSE:KMP), purchased 100,000 shares of Kinder Morgan, Inc. (NYSE:KMI) on May 9, 2014 for a total consideration of $3.2 million. While Kinder Morgan, Inc. owns the general partner interest of Kinder Morgan Energy Partners and El Paso Pipeline Partners, L.P. (NYSE:EPB), a purchase of KMI shares by Richard Kinder can also be understood as an endorsement of Kinder Morgan Energy Partners.
An overview of Richard Kinder's most recent transactions is provided below.
(Source: Yahoo Finance)
Richard Kinder has been quite outspoken about his repeated purchases of KMI shares in the past. In the fourth quarter 2013 conference call, Richard Kinder directly and combatively addressed critique with respect to the lastest underperformance of KMP units and KMI shares:
Now perhaps we failed to adequately communicate our story, although we certainly tried, and maybe we did communicate it, and the message was not accepted. I don't know the answer to which it was, but I do believe that particularly at KMI and KMP, these securities are trading at the greatest disconnect to appropriate valuation since the period in 2006, just before we took the first KMI private. Like now, back in 2006, we had an enormous backlog of projects. And like now, many experts will find that we were too big to be able to continue to grow at an acceptable rate. We proved the doubters wrong the first time around, and I anticipate the same result this time.
Reflecting this belief in the Kinder Morgan companies, as many of you know, I've been a buyer of KMI shares. I've purchased over 800,000 shares in December alone. So I guess my message to those who saw the story less positively was you sell, I'll buy, and we see who comes out the best in the long run.
Some investors will argue that a transaction volume of around $3 million doesn't carry enough weight to make the bull case, considering that Richard Kinder is worth approximately $9 billion and owns more than 230 million shares. However, Richard Kinder has consistently purchased stock when Mr. Market quoted low prices and he follows through with his conviction that shares are undervalued. Richard Kinder's contrarian purchases are a strong signal for investors who want to invest alongside a successful billionaire investor for the long-term. The man believes in the undervaluation of the shares and acts on it. Maybe you should, too.
Disclosure: I am long KMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.