Follow the lead of insiders

With so much downside already played out and so depressed sentiment resulted in, I’m wondering if now is a good time to start accumulate shares of mREITs such as NLY or AGNC. Well we have got some good indicator that indeed now it is the time. No one knows in advance when is the absolute bottom for any stock but there are some people who can very accurately tell whether a stock is at a good price to buy. Who has such kind of magic power? The insiders, especially those who really know the business insider and out!  These are the people at the top of the company such as CEO or board directors etc. Of course, they dare not tell anyone external when to buy their stocks but their behaviors sometimes may give you a pretty good idea what they are thinking now. Whey they sell their stocks, it’s not necessarily a sign that the stock share is too high. There are too good reasons that they may want to sell their shares: maybe they simply want to diversify or they urgently need money etc. But there is only one reason when they buy, especially when buy big: they are bullish about their business and stocks and think the stock is a good buy at that price. While there is no 100% sure thing and they also don’t know if it is the actual bottom, following their lead can substantially increase your chance of making money.  

Well, the President and CIO of AGNC just bought 25,000 shares at $22.44 (total value of $561K) (see here). This is not a small amount of money and I think it really tells you that he thinks the worst is likely over for their stocks and at this price, AGNC is cheap. Actually in the same link you will see the CEO of Hatteras (another mREIT) has also bought 12K shares of their stocks. I’m not sure we can get a better indicator than that and I think the worst for this sector is probably has been over. I will follow their lead and slowly accumulate the stock to enjoy an almost 20% yield.

For those who know options and don’t what to take much risks, there is a way to almost completely minimize your downside risk.  If you sell deep in the money calls for AGNC, you virtually lock in the 20% yield and at the same time being protected against the price decline of the stock. Of course, this way you are only getting the income from the 20% yield (not bad at all in any sense) but you will not get any capital gain if the stock starts to move up in price. Personally I would not do so at the moment, considering this is likely at the bottom of the stock. I hope to enjoy both the 20% income and the capital gain as well by taking some risks.