Average investors may be on edge as US stocks set record highs and America’s biggest financial gurus are sitting on the market’s sidelines.
Last week, it was reported that Amazon’s Jeff Bezos and Meta‘s Mark Zuckerberg sold billions of dollars of their own company stock this year – even as the S&P 500 notched its best nine months on record.
Even the Oracle of Omaha Warren Buffett slashed Berkshire Hathaway’s holdings of Apple and built up a massive store of $277 billion in cash.
And it’s not just the heavy hitters who are passing on this market rally.
The officers and directors of all US companies – the ‘corporate insiders’ – reported the lowest net buying of their respective firms’ shares in a decade (22 percent in September, below the 10-year average of 26 percent), according to InsiderSentiment.com.
That set off hysteria in some parts of the mainstream media.
Last week, it was reported that Amazon.com’s Jeff Bezos and Meta ‘s Mark Zuckerberg sold billions of dollars of their own company stock this year – even as the S&P 500 notched its best nine months on record.
The officers and directors of all US companies – the ‘corporate insiders’ – reported the lowest net buying of their respective firms’ shares in a decade.
A finance professor told the Wall Street Journal last week that insiders are worried about a looming recession.
‘Insider trading is a very strong predictor of aggregate future stock returns,’ said Nejat Seyhun, professor at the Ross School of Business at the University of Michigan. ‘The fact that they are below average suggests that the stock returns in the future will be below average as well.’
So, what’s going on? What do these business-world bigwigs know?
The answer is that they know their own limitations.
For all of their genius and access to ‘insider data’, even Bezos, Zuckerberg and Buffett can’t predict what the market is going to do, so they are diversifying their assets – and you should too.
I’m here to tell you that ‘insider trading’ is nearly useless. If anyone tells you that they can predict how stocks are going to move – run in the other direction.
After all, nearly nine of out of ten hedge fund managers can’t beat the annualized gains of the S&P 500. I don’t take any advice from anyone who claims they can forecast what’s going to happen.
In this last financial quarter of 2024, I am both selling and buying stocks.
If one group of my investments, like energy industry stocks, has grown to significantly more than 20 percent of my total portfolio then I am going to sell it down. I’ll use that cash to build up my positions in one of the ten other sectors of the market, such as health care, financials or real estate.
It’s great when shares rise in value, but that also means there’s more to lose if that sector turns south.
Even the Oracle of Omaha Warren Buffett slashed Berkshire Hathaway’s holdings of Apple and built up a massive store of $277 billion in cash.
I’m here to tell you that ‘insider trading’ is nearly useless. If anyone tells you that they can predict how stocks are going to move – run in the other direction.
And there’s another factor to keep in mind as the year ends – the US presidential election.
I am going to avoid making any big bets between now and November 5.
Much like the markets, no one can predict what’s going to happen in the election. And, I believe, that come January 2025 the person sitting in the White House will shape the future of the US economy.
In the past couple of weeks, Vice President Kamala Harris has finally begun revealing some of her economic policies after studiously avoiding divulging specifics for months.
It is now apparent to me that Harris will pursue an agenda similar to President Joe Biden – meaning she’ll direct the federal government to favor certain ‘preferred’ industries over others.
I call that ‘picking winners and losers’.
The CHIPS and Science Act, signed into law by President Biden in August 2022, is a good example of this.
The administration decided that they would give trillions of dollars – through various federal investments – only to companies that produced certain types of computer chips.
Under the Biden White House, those companies were the ‘winners.’
Now, VP Harris is proposing that the federal government will continue this strategy and pay for it by increasing corporate taxes for all other companies (from 21 percent to 28 percent).
Those companies will be the ‘losers’ under a President Harris.
As an investor and a voter, if you believe the federal government is good at picking ‘winners and losers’, you may favor Harris’s approach. (Though there is no evidence in over 200 years of economic history of a successful centralized economy.)
On the other hand, former president Donald Trump has made clear that he will lower corporate taxes, allow companies to compete amongst themselves and let the markets decide who wins and who loses.
It is now apparent to me that Harris will pursue an agenda similar to President Joe Biden – meaning she’ll direct the federal government to favor certain ‘preferred’ industries over others.
On the other hand, Donald Trump has made clear that he will lower corporate taxes, allow companies to compete amongst themselves and let the markets decide who wins and who loses.
I believe that is how an economy works most efficiently. I will be waiting for the outcome of the election to determine my investment strategy going forward.
So, here’s my best advice for the investor facing this market rally.
Keep your powder dry and continue investing in a 401k that almost guarantees an eight to ten percent return over a long period of time.
If you have an appetite for slightly more risk, buy a basket of higher-quality stocks through ETFs like the Russell 2000, which tracks two-thirds of the most profitable companies in the S&P 500.
And remember – if America’s financial gurus can teach the average investor anything it’s that no one can predict the market.
