Insider Sales as Contrarian Signals: A Closer Look at Cornerstone’s Recent Transactions

In the world of investing, few signals are as intriguing—and as contentious—as insider trading. When corporate executives or board members sell shares of their own companies, the market often interprets it as a red flag. But what happens when the insider in question is part of a mutual fund, and the sale occurs in a broader context of market volatility and shifting investor sentiment? The recent transactions by Matthew Morris, a director of Cornerstone Strategic Investment Fund, Inc. (CLM), offer a compelling case study.

On September 3, 2025, Morris sold 35,000 shares of CLM at $8.14 per share, totaling $284,900, reducing his beneficial ownership to 26,193.8282 shares [3]. This was followed by two open-market sales for Cornerstone Total Return Fund, Inc. (CRF): 18,272 shares at $7.87 per share on September 3 and 35,000 shares at $7.90 per share on September 4, further trimming his stake in CRF to 11,467.9092 shares [2]. These moves, disclosed via SEC Form 4 filings, raise questions about whether insiders are signaling caution—or exploiting market inefficiencies.

Academic research suggests the latter may be more likely. Studies have consistently shown that insider trading contains predictive value, with insiders often buying before abnormal price increases and selling before declines [2]. For instance, a 2025 study in the Journal of Financial and Quantitative Analysis found that insiders are more prone to sell during periods of heightened retail investor attention, particularly for “lottery-type” stocks or those with significant retail ownership [5]. This behavior aligns with the idea that insiders act as contrarians, capitalizing on market overreactions.

The Cornerstone transactions fit this pattern. The timing of Morris’s sales—just as broader market volatility intensified—suggests a strategic response to investor sentiment. Notably, the funds’ share prices had been under pressure in the preceding weeks, with CLM trading below its net asset value (NAV) and CRF facing similar discounts. Insiders, with access to non-public information about fund liquidity and portfolio performance, may have viewed these discounts as opportunities to monetize overvalued positions.

This dynamic is not unique to Cornerstone. In 2025, Michael Burry of Scion Asset Management adopted a highly concentrated, contrarian portfolio strategy, betting on undervalued sectors like cosmetics and biotech [1]. His approach mirrors the academic finding that insiders and savvy fund managers often thrive in markets where information asymmetry is high. For example, a 2024 study in Scientific Data demonstrated that insider trading signals synthesized from SEC filings can predict short-term returns, particularly when insiders buy ahead of non-public news [4].

Yet, interpreting these signals requires nuance. While insider sales can indicate pessimism, they may also reflect personal financial planning or diversification strategies unrelated to fund fundamentals. As one 2023 paper noted, “Insider trading is a noisy signal; its predictive power depends on contextual factors like firm size, liquidity, and the nature of the transaction” [5]. For mutual funds, where shares are traded at discounts or premiums to NAV, the interplay between insider activity and market psychology becomes even more complex.

For investors, the key takeaway is to treat insider sales as part of a broader toolkit. Contrarian strategies—buying when insiders sell and vice versa—can be effective, but they must be paired with rigorous due diligence. The recent Cornerstone transactions, for instance, occurred against a backdrop of broader market uncertainty, including concerns about inflation and interest rates. In such environments, insiders’ actions may reflect macroeconomic caution rather than fund-specific distress.

In conclusion, insider trading in mutual funds remains a double-edged sword. While it offers valuable insights into corporate health and market sentiment, it should not be viewed in isolation. As the academic literature and recent case studies demonstrate, the most successful investors combine these signals with a deep understanding of market dynamics—and a healthy dose of skepticism.

**Source:[1] Michael Burry's 6 Most Contrarian Bets & Recent Buys in 2025 [https://www.tikr.com/blog/michael-burrys-6-most-contrarian-bets-recent-buys-in-2025][2] Profiting From Insider Transactions [https://www.2iqresearch.com/blog/profiting-from-insider-transactions-a-review-of-the-academic-research][3] [Form 4] Cornerstone Strategic Investment Fund, Inc. Insider Trading Activity [https://www.stocktitan.net/sec-filings/CLM/form-4-cornerstone-strategic-investment-fund-inc-insider-trading-acti-0cbf4e8b9925.html][4] Synthesizing Information-Driven Insider Trade Signals [https://papers.ssrn.com/sol3/Delivery.cfm/4537187.pdf?abstractid=4537187&mirid=1][5] Investor Attention and Insider Trading | Journal of Financial and Quantitative Analysis [https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/investor-attention-and-insider-trading/35FF8A9711241CE7F6AF8C03DFD4A2A4]