By Jake Mann
Over the past week, financial stocks have been in a tizzy, as the sector has fallen over 6 percent. From a macroeconomic standpoint, the broader markets have been shrouded by uncertainties regarding the Eurozone and the JPMorgan Chase (NYSE:JPM) trading loss. One factor that has gone overlooked, however, has been insider sentiment surrounding the financials. Empirical studies have proven that investors who make it a habit of mimicking or 'monkeying' insiders can beat the market by up to 7 percent per year. The chart below covers the insider sentiment surrounding the largest financial stocks being traded in the American indices.
# Insiders (B/S)
YTD Ret %
Bank of America (NYSE:BAC)
Morgan Stanley (NYSE:MS)
Wells Fargo (NYSE:WFC)
US Bancorp (NYSE:USB)
PNC Financial Services (NYSE:PNC)
Charles Schwab (NYSE:SCHW)
T. Rowe Price (NASDAQ:TROW)
Janus Capital Group (NYSE:JNS)
Upon first glance, the astute investor may notice the absence of Goldman Sachs (NYSE:GS) and Citigroup (NYSE:C); neither company has experienced insider buying or selling of any kind in the calendar year. Out of the twelve stocks listed here, only Bank of America had no bearish execs. Interestingly, this stock has also had the highest return out of the bunch, gaining over 25 percent since the start of 2012. Throughout this appreciation, company director E. Donald Powell has been quite the bull, buying 65,000 shares for a total value north of $500,000.
Moreover, the only other companies that have had any buying activity are US Bancorp, PNC Financial Services, Charles Schwab, and BlackRock. Including BAC, this group of stocks has generated an average return of 10.5 percent this year. Interestingly, this return is more than twice that of the remaining six stocks that insiders have been sourer on. Of these bears, Morgan Stanley has had the most putrid performance, losing just over 12 percent this year. The only MS insider transaction during this time frame occurred in late January, when the company's Chief Legal Officer F. Eric Grossman sold 12,484 shares at $18.21 each. This move is notable because it did not occur as a result of a stock option; it was a sale in the open market.
Additionally, some curious insider selling activity surrounded JPMorgan earlier this year. Back in January, the bank's Chief Risk Officer John Hogan sold 40,797 shares for a total value of more than $1.5 million. What makes this move so significant is because of its boldness; it reduced Hogan's holdings of JPM in half, even though he had not made a transaction of any kind in the preceding three years. Even more significantly, he was not the only insider selling shares. The entirety of this particular story can be read here.
While investors can surely not employ a strategy of following insider transactions alone, they can serve as a starting point for analysis. Likewise, it is always important to monitor the insider sentiment surrounding stocks held in your portfolio.