Article Thesis
We recently looked at what buybacks mean for a stock and its future performance, and in a similar way, we will take a closer look at what insider buying activity, as well as insider selling, mean for a stock's performance.
CNX Resources (CNX) and CNX Midstream (CNXM) did an IDR elimination a while ago, which was priced based on the expected 2020 payout and an assumption of ongoing double-digit distribution growth. Instead, management cut distributions by 80% a couple of months later following the IDR elimination. Over the last year, CNX is up 2%, while the stock price of the LP crashed by more than 50%. As it turns out, almost all of the shares that management owns are in CNX, almost none are in CNXM.
This shows that management alignment with shareholders matters, sometimes a lot. We will also be taking a look at that in this article.
Not all buying and selling is a meaningful predictor for a stock's future performance, but there are items that can be quite significant for investors. It thus can make sense to look at insider ownership and insider buying/selling when making investment decisions.
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Insider Ownership As A Predictor Of Stock Returns
Insiders, such as founders of a company, executives such as CEOs or CFOs, or directors oftentimes own stakes in a company, which may range from a small amount to quite large stakes in the double-digit percentage range.
These ownership stakes may originate from the fact that an insider was a part of the founding team, but ownership stakes can also originate from stock option awards, stock awards, or direct market purchases.
In order to determine what an average or usual amount of insider ownership looks like, we have compiled a list of the 30
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