Following the media glare that spotlights the moves of insiders who are self-made billionaires like the Oracle of Omaha, pharma visionary Phillip Frost, and legendary financier George Soros can be more than entertaining. All three stock gurus might owe some of their stock-picking good karma to their membership in the philanthropic Gates-Buffett Giving Pledge club.
An article entitled What Investors Can Learn From Insider Trading
One of the greatest investors of all time, Peter Lynch,
was noted as saying that "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise."
Insiders tend to move far in advance of expected news, partially because they're prevented from buying and selling their company stock within a six-month period.
A Pennsylvania State and Michigan State study confirms that significant insider activity typically precedes specific company news by as long as two years before the disclosure of the news.
The Buffett Bounce.
Warren Buffett is perhaps the best-known seer who invests with a long time horizon. Yet the "Buffett Bounce" often accounts for short-term gains. In fact, the 2007 study
"Imitation is the Sincerest Form of Flattery" showed that buying what Buffett buys -- even a month after his purchase -- is a pathway to superior returns.
It took three years for Buffett to realize a return of 13% from his $5 billion stake in Goldman Sachs
(GS), which was bought during the height of the 2008 meltdown. Goldman bought back Buffett's investment in March 2011 for a profit of $649 million.
These days, Buffett's top core holdings
include a 19.7% stake in Coca-Cola Company
(KO), 17.9% in Wells Fargo & Co.
(WFC), 17.8% in IBM
(IBM ), and 11.6% in American Express
Buffett's favorite bank, Wells Fargo, reported earnings July 13 with EPS of $.82, which is $.01 better than expected. Buffett has added to his $13 billion dollar stake by 3% last quarter.
Buffett Trumpets Residential Real Estate.
Early in 2012, Buffett told CNBC that single-family homes
are a very attractive investment and that he'd buy up "a couple hundred thousand" single family homes if it were practical to do so. He continued with the residential housing sector theme in another recent interview, sharing his view of a "noticeable" pickup
for residential housing from a "very low base" that "doesn't amount to a whole lot yet, but it's getting better."
A Legendary Financier Who Turned $1,000 Invested in 1969 Into $4 Million by Y2K.
While studying finance at the London School of Economics, Hungarian-born George Soros reportedly worked as as a railway porter and waiter. Today, he's ranked among the top five richest hedge fund managers in the Forbes 400.
When asked by an LA reporter, "How does one go from an immigrant to a financier? When did you realize that you knew how to make money?" Soros replied, "Well, I had a variety of jobs and I ended up selling fancy goods on the sea side, souvenir shops, and I thought, that's really not what I was cut out to do. So, I wrote to every managing director in every merchant bank in London, got just one or two replies, and eventually that's how I got a job in a merchant bank."
Unlike Berkshire Hathaway, Soros still holds technology stocks: 18% – although down by more than half from his 42% tech weighting in 2011.
Most recently, Soros and key internal company insiders have been accumulating Digital River, Inc.
(DRIV), revenue growth experts in global cloud commerce. "We are upgrading Digital River to Buy from Underperform due to an attractive valuation and upcoming Microsoft (MSFT) catalysts," said the Bank of America
Soros’ stocks with the highest earnings yield include: HollyFrontier Corp.
(HFC) 31.60%,Valero Energy Corp.
(VLO) 24.20%, Chevron Corp.
(CVX) 23.60%, JPMorgan Chase & Co.
(JPM) 20.80%, Tesoro Corp.
(TSO) 20.70%, DISH Network Corp.
(DISH) 19.60%, General Electric Company
(GE) 16.90%, and Macy's
Note: HollyFrontier has an earnings yield of 31.6%, which is the highest of all of George Soros stocks. This means that for every $1 the company is worth, it is creating $.32.
A Pharma Guru Who Knows Biotech From the Inside Out.
Newer to the ranks of world-class insiders with the power to move markets is Dr. Phillip Frost, a former dermatology professor who made mark when he sold drug manufacturer Ivax to Israel-based Teva Pharmaceuticals
(TEVA) for $7.6 billion in 2005.
He has been the chairman of Teva since 2010, and it remains his most valuable holding. He also heads up OPKO Health
(OPK), which is “not a typical biotech/health care company,” according to Eun K. Yang, biotech industry analyst at investment bank Jefferies, who rates the stock as a buy, calling it a holding company with “consistently evolving investment product/technology for risk diversification and growth enhancement.”
Recently the pharma guru increased his stake in ChromaDex
(CDXC), an innovative natural products company with some potential blockbuster superceuticals in the pipeline.
In a strategy that creates synergy, Frost has been able to get OPKO Health the licensing rights to all of ChromaDex's new products and technologies for Latin American distribution.
Frost began accumulating
ChromaDex at a cost basis of about $0.20 per share. It last traded at $0.79. In late June, he added to his over 19 % stake by 600,000 shares at $0.65. During the past year, there have been 29 insider purchases of ChromaDex, and only one sell.
ChromaDex recently received positive clinical trial results on the groundbreaking weight loss rejuvenative elixir. Also in the pipeline is a niacin supplement that could rival Abbot Laboratories' blockbuster Niaspin. The question is: Will ChromaDex have enough cash to meet licensing and advertising costs to bring these products to market??
The company stated in its March 2012 report
that it anticipated cash needs would be met through 2012, but it may still seek additional capital
prior to the end of the year to meet projects beyond December 2012.
Investing in ChromaDex, or any small cap biotech, means taking on risk associated with questions in confidence about balance sheet fundamentals. Still, pharma guru Philip Frost
and other key ChromaDex insiders keep buying.