What Are Insiders Doing?

Who truly knows more about a company’s prospects than the executives running the operation? These executives, commonly referred to as insiders, are privy to sensitive non-public information. Insiders are subject to severe restrictions in how they handle this information and most importantly in how they manage their own finances.

Insiders selling company stock is not always an indication that the company is having problems. Insiders manage their own finances and will sell for a variety of reasons, especially for tax purposes. That said, monitoring insider activity is always prudent. Are there trends? Is activity heavily skewed in one direction or another? Is there a major inconsistency between insider activity and analyst recommendations?

In reviewing information provided by Barrons this weekend, the answer to all of these questions is yes, yes, and yes!! Barrons highlights insider activity in a number of Nasdaq companies in a weekend article entitled, Orgy of Speculation,

What leads us to talk about PowerShares QQQ (you thought we’d never get around to telling you) was Alan Newman’s CrossCurrents advisory letter, published a fortnight ago. More particularly, his survey of insider transactions in the top eight issues in the ETF. He performed the exercise on May 10 and what he discovered was rather astounding.

There were 231 sellers and three buyers, which works out to a somewhat lopsided ratio of 77 to 1. All told, the insiders sold 59.8 million shares and purchased 15,200 shares, a sell/buy ratio of 3,933 to l. Not exactly a resounding vote of confidence in the prospects for their companies.

Moreover, Alan notes, analysts are just as positive on the QQQ leaders as they were back in March 2008 before a 37% fall in price. At that time, 74.1% of the recommendations were Buys and 2.9% were Sells. As of May 10, 2010, 77.7% were Buys and 3.6% Sells. The more things change, we guess, the more things stay the same, especially on Wall Street.

Insiders are hardly infalliable investors and, as Alan observes, their investment habits are not a timing indicator. Still, they do tend to know a bit more about the company and its outlook than the analysts or the folks buying the stocks they’re so determinedly selling.

I would never blindly implicate an entire group of individuals or companies but with insider selling ratios along with accompanying analyst ‘buy’ recommendations of these magnitudes, if you are thinking ‘pump and dump‘, you definitely have company!!

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

Visit: Sense On Cents

Be the first to comment

Leave a Reply

Your email address will not be published.


*