As the world’s largest stock exchange, New York’s financial district is a fascinating place to observe traders come together. Tourists swarm around excitedly taking pictures, while knowledgeable investors stroll in slowly and calmly. The energy is palpable!
Now imagine if one of those calm investors was none other than James Darmound Steel (J.D. Steel to his friends). A lifelong New Yorker, Steel first experienced the city’s pulsing energy in the 1950s when he started his investment career. Back then, Wall Street was a place of hustle and bustle, with people constantly moving, talking, and connecting. Steel quickly learned to harness that energy while also adapting to the ways of the “new” Wall Street.
As the economy shifted from a manufacturing base to one dominated by information technology and services, Steel found that being on the right side of the street became crucial. He attributes much of his success to those early years and says that the lessons he learned are just as valuable today.
When we meet, Steel is in the midst of a busy day. After spending a few minutes settling into a chair at a nearby Starbucks, he jumps right into the conversation, interrupting his train of thought just long enough to pour his coffee. Although he typically enjoys a morning coffee before heading to his office, today is different. Today is a very important day, he explains. There is currently a lot of buzz surrounding one particular stock, and Steel and a handful of his colleagues are about to place one of the largest bets known to man on one particular company. It’s going to take some serious caffeine to make it through!
How big is the bet? $1 billion on one share of stock. For perspective, consider this: if you put $1 billion on one share of Apple stock at the current price of around $207, it would be equivalent to buying a football stadium full of iPhones! Or, to put it another way, it’s going to take a lot of caffeine to make up for how little sleep Steel has had these past few weeks. Not only is it going to be an important day for Steel, but it will also mark an important day for you, the reader, as well.
The Birth of the Mega-Billion Dollar Stock Bet
While the world’s attention has shifted to cryptocurrencies such as Bitcoin and Ethereum, the largest stock exchange in the world has quietly been making headlines for a different reason. For the last few years, S&P 500 company insiders have been acting on a hunch: that the manufacturing decline that began in the early 2000s would eventually pay off in bigger dividends than anyone expected. At first, many investors thought that the “new” economy would lead to fewer profits for companies, and thus to lower stock prices. But that’s not what happened. The opposite, in fact. Many insiders have been buying up to 50% of their company’s stock, as the following examples illustrate.
Take a look at some of the biggest stock purchases made by company executives in recent years.
On September 14, 2019, James Darmound Steel, the CEO of J.D. Steel, made a massive purchase of Apple stock, purchasing a one million share position. In doing so, he became the largest individual shareholder in Apple, with a 10.3% stake. Just a few days earlier, Steel had teased the investment, saying he had some exciting news to share but that investors should stay tuned.
On September 18, Steel interrupted his day off to buy an additional 500,000 shares of Apple, bringing his total holdings to 2.3 million shares or 12.3% of the company. That’s a huge stake for any individual, but it’s even more impressive when you consider that he had to pay almost $20 for each share. Since that time, Apple’s stock price has risen by 37.5%, providing him with a nice gain.
On January 30, 2020, Jeffery P. Bezos, the founder and CEO of Amazon, purchased 500,000 shares of his company’s stock in a strategic move that could potentially increase his net worth by as much as $30 billion. The news, which was first reported by Marketwatch, broke just before the opening bell on Wall Street. In doing so, Bezos became the largest individual shareholder in Amazon, with a 7% stake. Amazon’s stock price has jumped by 37% since that time.
Bezos isn’t the first high-profile individual to take notice of Amazon. In fact, the company saw a 20% spike in its share price just after Michael Dell made a similar purchase in 2018. The two CEO’s combined now hold almost 14% of the company’s outstanding shares. If you thought that Bitcoin’s price increase was unprecedented, just wait until you see what’s happening with Amazon’s stock price.
On October 1, 2019, General Motors became the latest company to be rocked by allegations of misconduct when its CEO, Mary Barra, was accused of suppressing employee wages and offering them shares of stock as incentive. The accusation was made by an employee who sued the company, claiming that he was owed $11.5 million in bonus payments. The suit also alleged that Barra misled investors about the true state of the company’s finances.
Barra is facing a number of challenges. Not only does she have to deal with the fallout from the recent GM allegations, but she also needs to address the fact that her former employer, General Motors, is now suing her for fraud. The company’s share price has taken a nosedive since the allegations surfaced and is currently down over 10% since its peak in 2018.
On August 14, 2019, IBM made the largest stock purchase in the company’s history, buying 1.3 million shares in a strategic move that could potentially increase its net worth by $12.8 billion. The company’s stock price jumped by 14% after the news broke, with many analysts attributing the rise to a combination of factors, including the acquisition and a more favorable stock market. For the last few months, IBM’s share price has been on a steady rise, gaining over 40% since its low point in 2018.
The big question is: will this trend continue? Over the last decade, we’ve seen the wealth of individual corporate executives rise along with that of the overall economy. As stock market valuations have risen, so has CEO pay, along with stock options and other types of employee compensation. Some may even say that the pay-to-play system that was originally designed to incentivize executives to promote shareholder value has become completely distorted.
While Bitcoin and other cryptocurrencies have dominated the headlines, the largest stock exchange in the world has quietly been making headlines for a different reason. For the last few years, S&P 500 company insiders have been acting on a hunch: that the manufacturing decline that began in the early 2000s would eventually lead to bigger dividends than anyone expected. At first, many investors thought that the “new” economy would result in fewer profits for companies, and thus lower stock prices. But that’s not what happened. The opposite, in fact. Many executives have been buying up to 50% of their company’s stock, as the following examples illustrate.
Consider, for example, Apple’s CEO, who became one of the richest individuals in the world after selling the company a large number of shares. Or, consider Jeff Bezos, the founder of Amazon who now owns over 7% of the company. Or, take Elon Musk, the founder of Tesla and SpaceX who now owns 5.3% of the company. All three of these men have significant personal wealth due to their successful careers in technology. But their holdings in these companies are now worth billions of dollars. Could the rise in stock prices continue? More importantly, could this wealth accumulation translate to even more successful ventures and even larger wealth accumulations?
These are all important questions for a future that was once considered impossible. And now, with the world’s largest stock exchange putting money on the table, perhaps it won’t seem so impossible anymore.