The Shifting Playbook of Athlete Investors: Lessons from Corporate Insiders

KEY POINTS

• Timing and Selectivity: Athlete investors should prioritize timing and selective investing rather than rushing into popular trends, taking cues from corporate insiders who show restraint despite market rallies.

• The Power of Expertise: Like athletes rely on coaches, athletes should lean on financial experts for specialized insights, similar to how corporate insiders use their deep understanding of market conditions.

• Diversification is Key: Athletes need to avoid over-concentration in any one sector or investment and adopt disciplined diversification strategies to ensure long-term financial stability.

👉 Bonus: Below you will find five ChatGPT prompts that you can use to develop your expertise in this area.

The rise of athlete investors is one of the most intriguing shifts in modern sports. No longer content with just endorsements, today’s elite athletes—like LeBron James, Serena Williams, and Kevin Durant—are delving deep into investment opportunities. As they build their portfolios, however, the challenge remains: how can athletes successfully navigate the volatile waters of investing?

In the fast-evolving landscape of professional sports, the roles of athletes are expanding beyond the playing field. Many are now keenly pursuing opportunities as investors, not just in sports-related ventures but across diverse sectors. As they navigate these waters, athlete investors can gain valuable insights from the behavior of another group of influential market participants: corporate insiders. Recent trends in insider trading activity indicate a notable shift in sentiment, offering lessons that can shape how athletes approach their own investment strategies.

Riding the Bull or Sitting on the Sidelines?

As the stock market has surged in 2024, the S&P 500 index notched its best first nine months of a year since 1997, advancing by a remarkable 21%. The rally, driven by strong investor confidence in sectors such as technology and a belief that the Federal Reserve has tamed inflation, seems to have convinced many retail and institutional investors that the bull market will continue. However, some of the most well-informed participants—corporate insiders—are showing a distinct lack of enthusiasm.

Corporate insiders (of all U.S. companies), which include top executives and board members with intimate knowledge of their companies, have significantly reduced their stock purchases. In July, only 15.7% of companies with insider trading activity reported net buying, the lowest level in the past decade, according to InsiderSentiment.com. This marginally improved to 25.7% in August but fell again to 21.9% in September, well below the 10-year average of 26.3%. This pattern suggests a cautious outlook, even as the broader market shows resilience.

Insider Sentiment

Of U.S. companies with a transaction by an officer or director, the percentage with net buying (Source: InsiderSentiment.com)

Followers of insider sentiment believe the trades of company executives and board members, who ought to be well-informed about the prospects for their own businesses, can collectively provide a signal about the future performance of the market as a whole.

For athlete investors, this divergence between market performance and insider sentiment raises a fundamental question: Should they be buying into the hype, or is now the time for restraint?

Timing and Selectivity: A Key Takeaway

Athletes are no strangers to making split-second decisions under pressure. But in the investment world, impulsive moves can be costly. One lesson from the current trend in insider trading is the importance of timing and selectivity. Many insiders, despite the rally, are choosing not to increase their stakes. Some, like Warren Buffett, are even raising cash reserves rather than doubling down on equities. Warren’s Berkshire Hathaway, for example, has sold off significant portions of its holdings in Apple and other stocks, amassing a $276.94 billion cash pile as of June 2024.

This approach is particularly relevant for athletes, who may feel pressured to chase the latest trends or allocate large portions of their wealth to investments perceived as “hot.” The restraint shown by corporate insiders suggests that there is value in waiting for the right opportunities, rather than jumping into a crowded trade. Instead of rushing into high-flying tech stocks, athletes could explore diversifying into less trendy sectors or keeping more cash on hand to seize opportunities during downturns.

Recognizing the Power of Expertise

Athletes often rely on specialized coaches and trainers to hone their skills and stay ahead of the competition. Similarly, in the investment realm, having access to expert advice is crucial. Corporate insiders possess a depth of insight into their companies that is unmatched by external investors. When they reduce their buying or increase selling, it often signals concerns about the firm’s short-term prospects or broader market conditions.

One telling example is the selling behavior of leaders in the tech sector. Jeff Bezos, the founder and executive chair of Amazon, sold stock valued at $10.3 billion this year, while Michael Dell offloaded $5.6 billion worth of Dell Technologies shares. Mark Zuckerberg of Meta Platforms has sold $2.1 billion in stock, despite strong performance in each of their respective companies, according to Washington Service data. This pattern suggests that even within a booming sector, insiders may perceive elevated risks or potential overvaluation. Shares of all three companies are up by double-digit percentages this year.

For athlete investors, understanding when to lean on expert advice—whether from financial advisors or experienced partners—is critical. While personal intuition and interest are valuable, the specialized knowledge of seasoned investors can help in assessing whether an opportunity is truly sound or just driven by market exuberance.

A discussion between Frida AI Fridason (Entrepreneur & Advisor, former S(ai)lor) & Tom AI Tomson (Entrepreneur & Investor, former Mount(ai)n Biker) on the topic:

Be aware that this is one of our AI experiments, so Frida and Tom don’t really exist.

👉 You can find our other podcasts collected in our Athletes in Business Lounge.

Diversification: A Strategic Move

Another key takeaway is the need for diversification. Many of the largest insider sales in 2024 have been attributed to executives unloading shares to diversify their wealth. For example, Jeff and Michael’s sales were partly motivated by the desire to reduce concentrated exposure to their companies. The rationale is straightforward: even if a particular company or sector is performing well, holding too much in one asset can expose an investor to outsized risk. For this reason, some investors believe that insider selling isn’t an effective indicator, saying stockholders might unload shares to diversify their portfolios or free up cash, rather than because of a negative view about the stock.

However, Athletes should heed this (diversification) lesson. Many high-profile athletes have lost significant portions of their wealth by placing too much capital in a single venture—often linked to personal connections or a desire to be involved in glamorous projects. Instead, adopting a disciplined approach to diversification, by spreading investments across different sectors and asset classes, can mitigate risks and enhance long-term financial stability.

The Value of Patience and Long-Term Vision

The behavior of insiders like Warren Buffett, who is known for his long-term, value-oriented approach, underlines the importance of patience. As the saying goes, “Be fearful when others are greedy, and greedy when others are fearful.” While most investors are currently riding the wave of market optimism, insider caution hints that a more sober assessment of valuations is warranted.

JPMorgan Chase Chairman and Chief Executive Jamie Dimon is one prominent executive who has warned that the path ahead for the economy might be more difficult than many investors believe. In May, Jamie said he was cautiously pessimistic about risks to the global economy and thought the bank’s stock was priced high.

For athletes, whose investment timelines often extend beyond their playing careers, it’s crucial to adopt a long-term perspective. This means resisting the urge to frequently buy and sell based on short-term market movements. Instead, focusing on investments that align with long-term goals—whether it’s generating steady income, preserving capital, or building a legacy—should take precedence.

Caution Amid Optimism: A Balancing Act

It’s easy for athletes, accustomed to fast-paced environments, to be swayed by the thrill of rapid gains. But as corporate insiders sit out the rally, it suggests that a balanced approach is needed. While market enthusiasm might be tempting, the tepid buying by those with the best access to information points to underlying uncertainties. These could include fears of a recession, as noted by Nejat Seyhun, a professor of finance at the University of Michigan and an adviser to InsiderSentiment.com, who argues that insider behavior is often a reliable predictor of future market trends.

Athletes, therefore, should strive to strike a balance: maintaining exposure to potential growth areas while being wary of overextending in an overheated market. Regularly reviewing and rebalancing their portfolios to reflect changing (medium- and long-term) conditions, much like how they would adjust training regimens based on performance data, can help manage risk effectively.

5 PROMPTS THAT ATHLETES CAN USE TO DEVELOP AND BUILD EXPERTISE

• What investment strategies should athletes consider to build long-term financial stability and avoid common pitfalls in the transition from sports to business?

• Analyze the importance of timing and selectivity in investment decisions, referencing examples from corporate insider strategies to help athlete investors make informed choices.

• What are the best practices for assembling a team of advisors and partners to guide athletes in their business ventures, similar to the way corporate insiders build strategic support networks?

• How can I leverage my personal brand and influence as an athlete to access high-quality investment opportunities outside of traditional sports-related ventures?

• Discuss how athletes can adopt Warren Buffett’s long-term value investing principles and apply them to diversify their investment portfolios across different sectors.

👉 Check ChampionsChat GPT for your prompts.

Practical Steps for Athlete Investors

Given these insights, how should athlete investors structure their portfolios and decision-making?

• Adopt a Long-Term Perspective: Inspired by Warren, avoid being swayed by short-term performance. Focus on companies with strong fundamentals and the potential to grow sustainably.

• Manage Risk: Take a page from Jamie Dimon’s playbook and ensure your portfolio is not overly exposed to any single asset or sector. Consider keeping a portion in cash or low-risk investments as a hedge.

• Diversify with Purpose: Like Jeff, look beyond traditional investments. Consider sectors with high growth potential, such as technology, sustainability, or emerging markets. But remember: diversification should align with a broader strategic vision, not just spreading money thinly.

• Stay Informed: Athlete investors should regularly consult with financial experts and remain up-to-date with market trends. Whether through personal advisors or industry research, staying informed can help navigate complex financial landscapes.

• Build a Strong Team: Finally, surround yourself with trusted advisors who can provide a balanced perspective. This includes financial planners, legal experts, and, if necessary, specialists in venture capital or real estate.

Conclusion: Playing the Long Game

The current actions of corporate insiders send a clear message: despite a booming market, caution and strategic thinking should guide investment decisions. For athlete investors, this means focusing on quality over quantity, seeking out opportunities with sustainable value, and avoiding the trap of market euphoria. Like top athletes who know when to push hard and when to conserve energy, successful investing requires both discipline and patience.

By focusing on long-term value, managing risk effectively, and diversifying thoughtfully, athletes can position themselves for sustained success, turning their playing career earnings into generational wealth. In a landscape where the stakes are high, the measured actions of corporate insiders can serve as a valuable compass. By incorporating these insights, athlete investors can ensure that they’re not just in the game—but playing to win, both now and in the future.

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I really appreciate you reading my note today.

Peace,

Irg

Irg’s work is provided for informational purposes only and should not be construed as legal, business, investment, or tax advice. You should always do your own research and consult advisors on these subjects. This work may feature assets and entities in which the author has invested.

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