It’s an old adage…
“You should buy when there’s blood in the streets.”
Investors have been using this credo for centuries. The legend goes that the first one to say it was Nathan Rothschild, the 19th-century British financier.
What would he do if he saw the headlines such as this one?
Would he panic and close his positions in banking stocks?
Or would he rather buy the stocks that the rest of the market is selling out of fear?
He would buy. As a banking insider, he knew that market panics were the perfect time to buy assets at bargain prices.
Today’s insiders know this, too.
As the general market has been swinging between hope and despair, a group of people have been buying regional bank stocks in droves.
Insiders Are Buying Regional Bank Stocks
That headline above has a bit of truth in it.
The collapse of the Silicon Valley Bank (or SVB) did create a contagion effect.
But it has nothing to do with the global financial system falling apart. It isn’t.
Stock prices, however, are a different story.
Even though SVB wasn’t the biggest bank in the U.S. and the reason for its collapse is not that complicated to understand (it invested in government bonds at the top of the market and saw their value plunge so low the loss would wipe out its equity), it sent shivers across the investment world.
Stocks were falling in Asia… Europe… North America, everywhere.
And most of them were falling for no good reason.
Seeing this, more than 100 regional banking executives in the U.S. spent almost $14 million buying their banks’ shares, according to Bloomberg:
Regional bank leaders are snapping up shares of their companies’ stocks, taking advantage of a selloff fueled by the fallout from Silicon Valley Bank’s collapse.
More than 100 executives at lenders across the US, including PacWest Bancorp, Metropolitan Bank Holding Corp. and CVB Financial Corp., spent at least $13.9 million combined boosting their stakes, according to data compiled by Bloomberg. Most of the transactions took place in the past few days.
They did it while the KBW Bank Index, a benchmark index for the banking sector, reached its most oversold level in two decades.
I mean… when something like this happens, and you have confidence in your bank’s balance sheet, why not buy?
Peter Lynch, the renowned investor, said, “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
I agree. And this insider activity absolutely confirms my thesis: we are in the second half of the 18.6-year cycle, and banks are going to be some of the best investments at this stage.
Editor, Cycles Trading with Phil Anderson