🧐 Insiders Selling Stock: Should We Be Worried?

What’s on the Menu 🍴

Fear sells, and people have been selling it lately…

Because of inflation, insider selling, and gold bugs saying the world is about to end.

Is all that a reality?

Let’s answer all those questions today…

• Insider Selling Stock: Should We Be Worried? 🧐

• Is The “American Dream” Now Out Of Reach
  For the Average Family? 🏡

• The Pros & Cons Of Investing In Gold 💰

• Are Americans REALLY Broke? [Diving Into Wealth Trends] 📺

Today’s newsletter is a 5 minute read.

Insider Selling Stock: Should We Be Worried?🧐

We’ve seen a lot of viral headlines lately about company insiders & executives selling stock.

This headline from Fortune for example sounds pretty scary:

More than a few people lately have asked us “Do these insiders know something that we don’t? Is some terrible financial event on the horizon?!”

We’re here to soothe those fears and set the record straight.

Here are the reasons why we don’t think these insider sales mean that doom lies ahead:

1. Most of the insider sales were planned many months ago

2. Most insiders are only selling a small percentage of their holdings

3. With stock values reaching new heights, small share sales yield large dollar amounts

4. It’s natural to see profit taking & diversification after a strong market run

Allow us to elaborate…

Reason #1: most of the insider sales were planned well in advance

For example, JP Morgan told investors that Jamie Dimon would be selling a modest portion of his stock four months ahead of time. The company also said he would continue to hold a large stake:

Jeff Bezos also announced his stock sales three months ahead.

Jensen Huang, CEO of Nvidia, sells small amounts of NVDA stock nearly every year via his scheduled “10b5-1” automated trading plan:

The Walton family has collectively sold several million WMT shares every single year since 2016.

Doomers try to spin these stock sales as unusual abrupt decisions, but reality shows us otherwise.

Reason #2: most insiders are only selling a small portion of their holdings

Yes, Jeff Bezos sold a whopping $8.5 Billion worth of Amazon stock this year.

To anyone not in the .01% of global wealth that sounds like a lot! And it is…

But it’s only 5% of Bezos’ stake in Amazon. He still holds 95% of his shares, valued today around $160 Billion.

It’s not the first time he’s sold some Amazon stock either.

Bezos has big plans for Blue Origin, his space tech company, which will require significant capital in the next decade.

The Waltons still own ~46% of Walmart, valued at roughly $220 Billion today. The majority of the family’s net worth continues to be tied to Walmart.

Which brings us to our next point…

Reason #3: companies are more valuable so small share amounts = big dollars

Nvidia’s market cap is up almost $2 TRILLION dollars over the past three years. It’s now the third largest public company in the world.

That means that modest share quantities translate into HUGE dollar amounts.

When the media reports that founder CEO Jensen Huang recently sold $100 million worth of stock it might shock some people.

But while that is a large dollar amount, it represented just 250K shares, or less than 0.50% (half of one percent) of his total holdings. He still holds more than 86 million shares of NVDA…

Reason #4: profit taking & diversification are healthy

Stock prices are up and many investors are taking some profit off the table.

It shouldn’t surprise people that company executives would want to do the same.

After all, many founders and C-level execs are far less diversified than your average person. A majority of their net worth is often tied up in company stock.

Sometimes execs take loans out against stock to give them liquidity, but this isn’t always ideal (especially in a higher interest rate environment).

One of the all-time great stock investors Peter Lynch once said, “There's a lot of reasons insiders sell but there's only one reason ******why they buy”

So when you see these headlines that imply insider stock sales are a sign of impending doom in the stock market, take a deep breath.

Most likely it’s just another classic example of clueless people spreading fear based narratives that are just plain wrong!

Is The “American Dream” Now Out Of Reach
For the Average Family? 🏡

According to Investopedia, the “Average American Dream” now costs about $3.4M…

Here’s a breakdown of some major costs:

• Health insurance: $934k

• Retirement costs: $715k

• Mortgage interest: $796k

• Vehicle purchases: $271k

• Pet care: $67k

• College: $42k

• Wedding: $36k

• Funeral: $8k

Seeing how this is just an “average”, that means millions of Americans end up spending way more than $3.4 million…

And that got us thinking about a few questions:

1. WHY does it cost that much?

2. HOW do people afford the “dream lifestyle”?

3. WHAT can someone do to accelerate their wealth building journey?

Since wages haven’t kept up with inflation, many families are feeling the squeeze.

At the Daily Dough, our goal is to help you earn more money, keep more money, and grow your money…

And I think these stats highlight a few points:

• Investing early can relieve the stress of these major costs

• Geoarbitrage can help reduce costs and increase monthly cash flow

• The costs of life’s major expenses has gone up FASTER than the official inflation numbers

In a nutshell, people who find ways to live a great quality of life while minimizing costs and getting their cash flow invested have a much better chance at true financial freedom than the “average” person.

For example, a young single guy could live in South East Asia or Central America and have a great, low cost lifestyle while earning in dollars.

Or a young family could move to a third tier city and raise a child at the fraction of the cost of a metropolis like New York or Los Angeles.

Instead of a brand new $80,000 truck, why not buy a reliable brand with 20k miles on it?

If you take a hard look at these major spending categories, I think you could find ways to save tens or hundreds of thousands of dollars…

Which you can use to feed your investing machine and get closer to financial freedom!

The Pros & Cons Of Investing In Gold 💰

Gold… the most beautiful shiny metal that we are able to invest in.

The good:

It’s a hard asset.

It helps us beat inflation.

It helps hedge against crisis in financial markets.

It’ll even help us trade goods in a major dystopian crisis (let’s hope that never happens).

However, some people might be too heavily allocated to the shiny metal.

Gold is certainly having its time in the sun at the moment as it breaks out to new all-time-highs.

But, we need to address how to approach Gold in your portfolio.

When we look at how Gold has fared with returns in the past 30 years versus the S&P 500, there’s no comparison:

So over-allocating to Gold may not help you achieve your actual monetary goals.

Gold is a slow moving asset as well. Prices are technically more volatile than the S&P 500, but, returns are smaller on an annualized basis.

The S&P 500’s annualized return for the past 30 years is around 10.33% while Gold is 5.76% according to Ycharts.

Truly, with a higher standard deviation (measure for volatility) and lower returns than the S&P 500, it begs the question why someone would want to be SO heavily invested in the metal?

Well, those who typically invest heavily in Gold do it out of worries for our financial system and more. When “you know what” hits the fan, they think Gold will save them.

Some people allocate their portfolio more for crisis than they do for prosperity. However, large returns come from prosperity.

Gold tends to perform well when the S&P 500 is in crisis. So, this thinking holds true.

But, more times than not, and over most time frames, investing in U.S. stocks beat the returns of Gold.

So, what is an investor to do?

One one hand, you have an asset that helps hedge against inflation and crisis. On the other hand, the U.S. stock market (and now Bitcoin) have clearly out-performed Gold.

This leaves an opportunity cost of having a portfolio too deeply allocated to Gold over stocks or even Bitcoin.

A good rule of thumb in the portfolio construction world is to not have a Gold position over 10% of your portfolio.

Most of the time, you won’t see a Gold allocation higher than even 5%.

But, of course, you may have certain beliefs and values that push you towards a much higher allocation than this.

As long as the opportunity cost of that higher allocation is considered.

In the end, Gold belongs in many portfolios for the reasons outlined… but, you certainly don’t want to make it the star of the show.

Video of the Day: Are Americans REALLY Broke? [Diving Into Wealth Trends] 📺

It seems like all we ever hear about is how broke Americans are.

Wealth gaps have been the root cause of the divide.

But… are the bottom half of Americans really doing as bad as the media says?

I dive into the data and review wealth trends in America for the people that matter: working class Americans.

Food For Thought 🧠

"The stock market is filled with individuals who know the price of everything,
but the value of nothing."
- Phillip Fisher

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.