“That’s Why I’m Richer Than You”: Executives Miss Out On Dimon Rally

Earlier this month, I took a look back at Jamie Dimon’s decision to buy nearly $27 million worth of  JPMorgan shares in February.

As it turns out, Dimon literally called the bottom. He also made a fortune. His average purchase price: $53.18. The stock now trades north of $86.

Dimon gets to add the fortune he made over the last nine months to the fortune he already had. He was already a billionaire – now he’s a billionaire-er-er.

But as Bloomberg points out, not all CEOs followed Dimon’s lead:

Insiders at a majority of S&P 500 Index companies didn’t purchase any of their firm’s shares in the open market this year, according to data compiled by Bloomberg, a far cry from the $26.6 million Dimon shelled out for JPMorgan Chase & Co. equity.

Most corporate executives and directors steered clear as U.S. stocks became increasingly expensive. A rally since the presidential election has lifted equity indexes to records and the S&P 500’s price-to-earnings ratio to a seven-year high.

Ian Levin, a partner at Schulte Roth & Zabel focused on executive compensation had an amusing explanation for the relative dearth of executive purchases.

“If you work at a butcher and a significant benefit of the job is that you get to take home several steaks every week, why would you want to buy more steak?” Levin asked/told Bloomberg, suggesting that because corporate management teams get a portion of their compensation in stock, they needn’t buy more.

Not to put too fine a point on it, but that’s a stupid question to ask. Normally, I don’t answer stupid questions, but I’ll make an exception for Levin. It’s probably correct to say that a butcher might not want to buy more steaks if he takes home say seven free NY strips every Friday. You can only eat so many steaks and if you don’t eat them fast enough, they go bad. Further, you might get tired of eating steak every night. Corporate executives on the other hand probably don’t get tired of making money and assuming they do their job (i.e. drive up the price of their company’s stock), more stock means more money.

That said, it does say something about valuations when executives eschew open market purchases. Their collective hesitancy to follow Dimon into the fray may suggest corporate America believes stocks are overvalued.

For those interested, here’s a chart showing which companies saw the most open market buying from insiders:

stockbuying

(Chart: Bloomberg)

As for those executives who remained on the sidelines, Jamie Dimon has a message for you:

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