VALUE: After Hours (S07 E31): Company Hack – Why CFOs and General Counsel Matter Most

During their recent episode, Taylor, Carlisle, and Stephen Farrington discussed Company Hack – Why CFOs and General Counsel Matter Most. Here’s an excerpt from the episode:

Stephen: And even better, when is the general counsel buying? Because you take the most pessimistic people in the building that have all the information to know where all the bodies are buried and know where all the risk is. And if I see a chief financial officer take $300,000 out of their checking account and buy stock in a company, and I see the general counsel take $200,000 out of their checking account and buy stock in the company, then I’m engaged.

So, maybe on average, insider behavior is noise. But within that noise is a lot of signal if you know that the parsimonious model is sometimes more correct. So, that’s insider behaviors. Maybe my most favorite screen, especially for being a generalist and not knowing so much about every industry.

Jake: I’d be curious if you could move that to even, like treasurer or the comptroller. Because it’s like, “Okay, the cash is real.” [chuckles]

Stephen: Yup, exactly. Chief operating officers are pretty good too. But you just have to know the CEO. He can be wrong. He can believe he can drink the Kool Aid. And directors, they could be doing a better job. But there is real hard kernels of data in the insider behavior, and it has worked out well for me in the past.

Tobias: I think that’s a pretty clever hack, actually, because as a former general counsel, I can confirm that the CFO and the general counsel are the most pessimistic guys in the building.

Stephen: If they’re buying, I’ll just take a flyer and punt on it and buy some as well, if I see a company with those two at the same time buying. I think that recently happened to one of the companies I was going to talk about today. I’d have to double check. No, I was going to talk about two stocks today, Crocs and Portillo’s. And in Portillo, you had big inside buys by the CFO and the general counsel at the same time, and large for the size of the company.

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