Cascade Investment, L.L.C.: insider trades

Would copying Cascade Investment, L.L.C.’s purchases have beaten the S&P 500?

Buying each purchase the day after it was reported, an equal amount each, and holding it 12 months or until they reported a sale would have turned $10,000 on November 5, 2010 into $58,448 by November 2, 2026, +11.7% a year. The copy held shares only 64% of the time, so the fair comparison is the S&P 500 on those same days with Treasury bills otherwise: $30,735, +7.3% a year (the S&P 500 held throughout made $81,636, +14.1% a year). Beta against the index was 0.39. Twelve months after each report, the average purchase was +5.4% against the S&P 500 (median +5.5%), and 82% beat it: within what luck alone would produce (p = 0.37 over 10 years). Measured from the trade date, the insider’s own timing, the average was +6.9%. After their sales, the shares moved +3.4% against the index over 12 months on average (a negative figure means selling was the right call); 50% trailed it.

With 296 insiders tested, some will look skilled or unskilled by chance alone: when we replaced each insider’s stocks with random companies bought on the same days, about 5.7 cleared the bar ahead and 23.3 behind. One record on its own proves little.

Return a year, copying

+11.7%

S&P 500, same days invested

+7.3% (held throughout +14.1%)

Time in shares

64%

Sharpe ratio (S&P 500)

0.68 (0.77)

Biggest drop (S&P 500)

−25% (−34%)

Market sensitivity (beta)

0.39

Purchases copied

87

Trade by trade

“Average vs S&P 500” is the stock’s return including dividends minus the index’s over the same dates, from the close on the first trading day after the report, or from the close on the trade date. Only windows that have finished are counted. For sales, a negative figure means the stock lagged after it was sold, so selling was the right call (green). “Went the right way” is the share of purchases that beat the index, or of sales that trailed it. The t-statistic uses one average per year of reports, because one person’s trades bunch into the same stock and weeks, and needs trades in at least four different years; the p-value comes from the t distribution with that number of years (with four years, a t of 2 has p = 0.14). “Some evidence” means p under 5%, “strong evidence” p under 1% over at least six years.

Companies traded

Trades and what followed

Moves are against the S&P 500; green means the trade went the insider’s way.

Open-market purchases and sales of at least $10,000 in companies we cover, from SEC Form 4 filings; sales made under a pre-set Rule 10b5-1 plan are not shown. “Not yet” means the window has not finished or the share price was under $5 at entry. These are the shares’ moves after each trade: they say nothing about why Cascade Investment, L.L.C. traded and do not suggest the use of non-public information. How every insider compares · the insider trading backtest.