Steve McDonald: Hi, everybody, I’m Steve McDonald. This is your Market Wake-Up Call. Our guest this week is the Alex Green – the best money mind in the business for my money. He’s here to talk about corporate officers and how much they affect the performance of a company’s stock. Welcome, Alex.

Alex Green: Hey, Steve. Thanks for having me.

Steve McDonald: It’s my pleasure. Now we hear all the time about the changing of the guard at corporations – like new CEOs and CFOs. How much do you think the officers of a company affect or drive the performance of their stock?

Alex Green: That’s hugely important actually. You have to remember that every company is essentially a team of people. For example, a sports franchise needs a great coach – a Phil Jackson, a Paul “Bear” Bryant, a Vince Lombardi – to bring out the best in the players on the team. Companies need that same quality of management. So that’s something I look at very closely. And there’s a very easy way to judge the quality of management – you simply look at the time that the officers and directors came on and look at the performance of the stock since that time. If the stock is outperforming, you know you have high quality management. And if it’s performing like the rest of the sector, you know you have mediocre management. So that’s a very important factor.

Steve McDonald: Now there are – this number is astounding – 52,000 stock transactions by company officers in their own company stock every week. 52,000. Now you and I both know that they have a lot more information about what’s happening behind closed doors than we do. The average guy has no idea. These guys have all the information, and they can legally buy their own stock. Is that correct? This is legal?

Alex Green: It’s legal if they file what’s called a Form 4 with the SEC that details how many shares they bought, on what date and at what price. If they don’t report their trades, it’s illegal. It’s also illegal if their trades are based on what the government construes as solely material nonpublic information. But as long as they follow the filing laws, they can buy and sell their shares. They’re watching the sales receipts and they’re looking at innovations taking place in a laboratory. They also know about plans to open new offices, to open new distribution networks, to ramp up hiring and to do more capital spending. So they have a huge advantage over the everyday investors, as you just suggested.

Steve McDonald: Is it possible to see what they’re doing, how much they’re buying and when they’re doing it? And how do you track it, if you can?

Alex Green: Yeah, well the government has tried to level the playing field. Obviously if I’m running a company and I’m watching the cash register receipts every day, I know exactly what’s going on and whether a trend is up or down. That would give me a big advantage over someone on the outside looking in. So when they file this Form 4, they have to do it within two business days of the transaction, and that becomes public information. So what I do is monitor these Form 4 filings every day. Now some of what they’re doing is actually meaningless noise – really small transactions or option-related transactions. In other words, if an employee, as part of their compensation package, can buy shares at $15 and the stock is trading at $28, then it doesn’t mean anything if they’re buying at $15 and can sell at $28 immediately. But if the stock is trading at $28 and they’re buying thousands or hundreds of thousands of shares at the same price you would pay, that’s a hugely valuable piece of information. So by all means, this is data that you can’t afford to ignore.

Steve McDonald: It’s still hard for me to believe that all they have to do is report it and they can buy all the stock they want. They have so much more information than we do.

Alex Green: They do. The only thing that they’re prohibited from doing is, again, buying solely on material nonpublic information. They can’t buy the stock on Monday before the takeover announcement on Tuesday. That would be called buying solely on inside information. But all the rest of the inside information that they have –

Steve McDonald: Like products, earnings, earnings reports and revenues – all those things they can buy.

Alex Green: Yeah or they can use information like potential takeovers, mergers and taking the company private. There’s all kinds of things that these officers and directors have access to. Think about it: Why would you go out and buy thousands or tens of thousands of shares of your own company’s stock with your own money at current market prices? There’s only one reason you would do that, and that’s because, given all this information that you have (including material nonpublic information), you feel the stock is trading for a lot less than what it’s worth.

Steve McDonald: Great. Alex, as always, thank you so much for taking the time to be with us.

Alex Green: Thanks for having me, Steve.

Steve McDonald: And for everybody here at the Market Wake-Up Call, I’m Steve McDonald. Thank you so much for being a part of us. We’ll see you next week.