Insider buying portfolio test? $KPLT rally - Looking for deep value! (Patreon)

$KPLT rallied like 100% since the last post. Hope some of you guys bought in and made money. I didn't. 

Rule 1: If Ben buys a stock, short the stock

Rule 2: If Ben mentions a stock but doesn't buy shares, buy as many shares as possible. 

Turns out insiders did have a pretty good idea of where the share price was going. Quick 100% gains in a matter of weeks. 

After painfully watching KPLT rally for the past few days (while having not bought shares), I realized that while I didn't make money, this served as a good validation of the strategy for me and you guys. 

I think DFV is really on to something weighing insider buying so heavily in his picks. Especially in this exact situation where insiders starting buying up shares after a giant sell off. 

I'm going to say this one more time then I promise I'll shut the fuck up about it. 

A massive selloff like this in a small/micro cap company presents the perfect conditions for risk asymmetry. 

1. Fear and uncertainty makes outside degenerates sell their shares

2. Insiders who actually understand the business see value in the discounted price

Who should we listen to? The market, or the people that run the company? 

Just a reminder that this, below, is a market participant like anyone else. 

Sometimes the market might be slightly "misguided".

This is obviously an oversimplification. However, it's a pattern I see over and over again while looking through insider transactions on openinsider.

One quick tip you've probably already noticed if you use this site a lot: 

If you're looking at latest insider cluster buys, you can hover your mouse over the ticker name to see the chart at the time of the insider transaction. 

This is a good way to quickly check what's going on with the share price. If you see massive red candlesticks combined with $3,000,000 worth of insider buys from the CEO, CFO, and COO, that's probably an opportunity you're going to want to look into further. 

$CANO, another stock I was looking at today on openinsider has a similar story. 20% sell off, insiders buying up shares, followed by a 40% rally in the next few weeks. 

As I was monitoring insider transactions through the past few weeks, I had an idea: 

What if we did a little experiment testing returns from insider buying? 

We could break down the strategy into a few simple buying criteria that I'd systematically implement. I'd put all the positions into a portfolio tracking website so we could view its returns separately from the other positions in my account. 

For example - 

We build a portfolio of 10 stocks. No position is weighted more than 15%. We determine the portfolio weight based on:

1. Number of insiders buying 

2. Dollar value of shares purchased  

3. Number of beers in Ben's system at the time

4. A quick glance at the chart

We purchase all shares in a lump sum fashion, based on the $4000 of cash on hand in TD right now. 

Everything I know about stock market efficiency suggests this shouldn't work. Because it's so incredibly counterintuitive that this wouldn't already be priced in, it somehow makes me think it will work. 

Inverse your every intuition right? 

The more difficult aspect of this is when we decide to sell. If we're buying purely based on insider buys, we know nothing about the fundamentals of the company, and thus nothing about what a good exit price is.  

For simplicity purposes, we could start out with a rigid month holding period, see how it works, and see if we need to adjust. 

A real stonk market experiment! 

Every morning, I can check insider cluster buys to see if there is anything interesting. To remove any bias, I'll make sure to not read anything about the company. Just weighting the positions purely based on the criteria above. 

The beauty of this is that it's an incredibly simple strategy that anyone with a minor amount of stonk market knowledge can implement. 

The more complicated your investment thesis, the more room for logical errors. See the Broken Leg Problem.  

Our idea is very simple - We're not that good at understanding every aspect of how a particular business works. We're definitely not as good as the people running the business. So why not buy the stock when we see that the people running the business are buying the stock?

This is your money. Your donations to Wall Street. I'd YOLO all of it on 1 DTE options if you told me to. So I'd much rather put it towards something that will be interesting for all of us.

Some quicker, more exciting, and more interesting trades. I really have no idea what will happen with this. 

Just deposited the next round of donations, which means we have plenty of cash on hand to start running something like this next week. 

If you guys aren't interested. I could also continue to look for deep value opportunities like I have been for the past few weeks. The difficult thing in that case is that opportunities are scarce, and I only want to post about companies that I really believe in. 

This would be a way to provide more interesting and consistent content for all of you, as well as test a strategy that has supposedly beat the market in numerous backtests. 

Let me know what you guys think. I'm thinking we run it for a month or two and see what happens. It seems like with a lot of these good insider buying signals, the stocks seem to rebound fairly quickly after a massive sell off. That's at least a fairly consistent trend I've noticed in the past few weeks.

Might be interesting to see how it returns against the S&P. It's not like it could do any worse than my individual stock picks.   

Let me know what you'd prefer down below. I think this could provide interesting content for you guys, and potentially show itself to be an effective strategy. 

Everyone have a good labor day weekend! Remember, you could always be worse off. 

Portfolio Update:

Micron options/shares down. A lot. Feel free to clown me down below.