The Pragmatic Capitalist points us to a recent development: In the midst of the current rally, insider buying has slowed to a trickle.
Here’s his chart of insider buying (in dollar amounts), which, if accurate, shows a marked collapse. Click to enlarge.
A lack of interest in your own company in the midst of the “green shoots” of economic recovery is a worrying trend. To make matters more worrying, insider buying is now being dwarfed by insider selling, according to another Pragmatic Capitalist post:
As we mentioned earlier in the week, insider buying has been non-existent. Even more alarming is this: insider selling is at its highest level since the bear market began. Are you buying? If so, you might just be buying from the very CEO who runs that company. Fill out those Form 4′s ladies and gents. You might run out of suckers (ahem, buyers) before long!
For a contrarian view, however, Forbes is running its own insider selling article, which includes the following tidbits:
The insiders are selling, but should you join them? As our panel of industry observers analyze recent insider sales, they’ve drawn the conclusion that many insiders might be selling more because they have to, rather than because they want to. Meaning that, while insider sales are typically a useful way to measure the future of a firm–i.e., sell when they sell–the current harried climate is the exception to that rule. …
Vince Farrell, chief investment officer at Soleil Securities, says that its foolish to assume that insiders are bailing on stocks because they believe they’ve topped out. “I think a lot of corporate biggies are guilty of the same thing as the subprime borrowers–too much debt,” he says.
Farrell pointed to the example of Aubrey McClendon, the founder and chief executive of natural gas firm Chesapeake Energy ( CHK – news – people ). Though already a multi-billionaire in August 2008, McClendon took on major leverage in order to buy more of his firm’s stock, eventually owning more than 32 million shares. But by Oct. 10, 2008 the vast majority of his shares had been sold, as McClendon fell victim to a margin call.
Farrell believes a similar dynamic could be at work now, which is why he cautions against reading too much into insider moves currently being made. “Normally, heavy insider selling can be used as a tool in evaluating stock,” he says. “I would be cautious about that now. Everyone is hurting.”
Now, there may be something to that. It’s conceivable that insiders, just like other financial players, are in need cash. Selling shares is a quick and easy way to get it. But explaining the deluge of insider selling as a mass outbreak of margin calls is perhaps stretching the thesis. In any case, there’s a host of insider buying and selling tracker-sites where you can observe the data, and form your own opinions on individual transactions.
Related links:
Directors Deals: Monitoring and analysis
Insider trading top 10 lists – MSN Money