When Company Insiders Talk… You Should Listen

Editor’s Note: Today, Chief Investment Strategist Alexander Green joins us to share how a three-minute conversation in the bleachers at a basketball game 30 years ago taught him the power of listening to company insiders… and changed his family’s future.

It’s a fascinating story – be sure to read Alex’s column below!

– James Ogletree, Managing Editor

Experts often tell you that the secret to success in life is thinking big.

Maybe. But in the stock market, the opposite is generally true.

It pays to think small.

By that I mean stop trying to figure out inflation, interest rates, the economic slowdown in China, the war in Ukraine and when the next recession will hit – instead, concentrate on something smaller.

Like the prospects for a particular business.

Here are two brief examples from my own experience…

About 30 years ago – back when I was a money manager and research analyst – I was an avid basketball player.

As soon as the closing bell rang at 4 o’clock on Tuesdays and Thursdays, you could count on me to be in my car and headed to the local gym for a full-court game with other (slightly over-the-hill) players.

In our pickup games, the winning five stayed on the court while the losing five went to the bottom of the list… and to the bleachers for a breather.

One afternoon – as I was (ahem) sitting in the bleachers – I met a guy who mentioned that he was a regional manager at Costco Wholesale (Nasdaq: COST).

“Yeah,” I said, “how’s business?”

“Too good,” he laughed.

Too good?

“You wouldn’t believe how fast we’re growing,” he said. “We can barely keep up with demand. I’ve been with the company seven years now and – let me tell you – it’s the craziest thing I’ve ever seen.”

That was the end of our conversation. But it was all I needed to hear.

When the market opened at 9:30 the next morning, I bought Costco at market.

I don’t own the stock anymore. Over the years, I gifted all my shares to my kids as part of my estate plan.

But I made sure they held on to them. And today they are worth roughly 100 times what I paid for them.

All thanks to a less than three-minute conversation three decades ago.

Here’s another example…

About 10 years ago, I had a phone conversation with my older brother.

He’d been a successful homebuilder in central Florida for over 25 years, winning numerous awards, including the annual “Parade of Homes.”

But he told me he was retiring.

“Why?” I said. “You’ve been killing it.”

“I can’t anymore,” he said, “thanks to D.R. Horton.”

He said the nation’s largest homebuilder had too many competitive advantages, including access to lower cost financing and huge economies of scale that allowed it to buy lots, building materials and appliances at far lower prices.

“For years, I’ve offered my buyers the best custom homes for the money,” he said. “But that isn’t possible anymore with D.R. Horton in the game. That’s why I’m throwing in the towel.”

I didn’t feel bad for my brother. His business had already made him a millionaire many times over. Plus, I knew he had plenty of interests to keep him busy in retirement.

But the importance of our chat was not lost on me.

As soon as we hung up, I logged in to my brokerage account and picked up $100,000 worth of D.R. Horton (NYSE: DHI) in my IRA.

My brother knew the homebuilding industry inside and out. If D.R. Horton was steamrolling him, it was flattening the rest of the competition too.

When my shares of D.R. Horton doubled, I sold them. After all, it never hurts to take a $100,000 gain tax-free, right?

Wrong.

As I write, D.R. Horton is now worth 10 times as much as it was a decade ago. It would have been smarter to hold on.

(I only left $900,000 on the table… so far.)

But here’s the main point…

If someone wants to tell you what the economy will do next… or what the Fed’s future interest rate policies will be… or how next year’s election results will upend the stock market, do yourself a favor and tell them to “talk to the hand.”

But if someone wants to share well-informed insights on the prospects for their company… or how a new competitor in their industry is forcing them into submission…

Trust me, you should be all ears.