Comments on: Insider Selling Could Mean Anything, Whereas Buying Can Only Mean One Thing http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html Chad Brand's stock market and investing blog Mon, 15 Mar 2010 23:24:23 -0600 http://wordpress.org/?v=2.8.5 hourly 1 By: Anonymous http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html/comment-page-1#comment-700 Anonymous Sun, 30 Sep 2007 01:46:00 +0000 http://www.peridotcapitalist.com/?p=494#comment-700 <a HREF="http://www.secform4.com/summary/index.htm" REL="nofollow">Insider buy sell ratios</a> were at a record level last month, followed by the 0.5 rate cut. Wonder if this is coincident... Insider buy sell ratios were at a record level last month, followed by the 0.5 rate cut. Wonder if this is coincident…

]]> By: Jeff White http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html/comment-page-1#comment-679 Jeff White Sat, 15 Sep 2007 15:40:00 +0000 http://www.peridotcapitalist.com/?p=494#comment-679 I tend to agree, but I still can't place trades based on insider buying because the insiders' timing can be so poor.<br/><br/>I also wrote about this very topic last month:<br/><a HREF="http://www.thestockbandit.net/2007/08/13/insider-activity/" REL="nofollow">Insider Activity</a> I tend to agree, but I still can’t place trades based on insider buying because the insiders’ timing can be so poor.

I also wrote about this very topic last month:
Insider Activity

]]> By: Chad Brand http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html/comment-page-1#comment-678 Chad Brand Sun, 09 Sep 2007 14:13:00 +0000 http://www.peridotcapitalist.com/?p=494#comment-678 A few counter points...<br/><br/>*FYI: Insider buys are direct purchases, not acquisitions due to exercising of existing options.<br/><br/>*I agree that some buys are more significant than others. So, if someone is buying a lot of shares instead of a little, and they have a good track record with prior purchases, that would be more meaningful than vice versa. Totally agree with that point. Still though, people are buying to make money. That doesn't mean they always will, but that is the intent.<br/><br/>*There is no doubt that sometimes insiders make "symbolic purchases" in the form of a few thousand shares, not because they think they're going to make a killing, but because they can easily afford it and they think it will have influence in the market. However, I would point out two things. <br/><br/>One, most of these people are smart and realize that it won't boost the stock for more than a day or two, if at all. I think that is why you don't see this type of buying all that often, relative to how many times there are confidence crises at particular companies.<br/><br/>Secondly, and more importantly, if we were just seeing small symbolic purchases, it would not have made a headline. Small purchases don't add up to the biggest monthly purchasing activity in 17 years (which happened to be the last recession by the way), which is why the story was newsworthy. Due to the magnitude of the buys, I think it's safe to assume most of these trades are more than symbolic. Of course, time will tell if they were wise or not. A few counter points…

*FYI: Insider buys are direct purchases, not acquisitions due to exercising of existing options.

*I agree that some buys are more significant than others. So, if someone is buying a lot of shares instead of a little, and they have a good track record with prior purchases, that would be more meaningful than vice versa. Totally agree with that point. Still though, people are buying to make money. That doesn’t mean they always will, but that is the intent.

*There is no doubt that sometimes insiders make “symbolic purchases” in the form of a few thousand shares, not because they think they’re going to make a killing, but because they can easily afford it and they think it will have influence in the market. However, I would point out two things.

One, most of these people are smart and realize that it won’t boost the stock for more than a day or two, if at all. I think that is why you don’t see this type of buying all that often, relative to how many times there are confidence crises at particular companies.

Secondly, and more importantly, if we were just seeing small symbolic purchases, it would not have made a headline. Small purchases don’t add up to the biggest monthly purchasing activity in 17 years (which happened to be the last recession by the way), which is why the story was newsworthy. Due to the magnitude of the buys, I think it’s safe to assume most of these trades are more than symbolic. Of course, time will tell if they were wise or not.

]]> By: Mark http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html/comment-page-1#comment-677 Mark Sun, 09 Sep 2007 12:29:00 +0000 http://www.peridotcapitalist.com/?p=494#comment-677 >>for many of these insiders, tossing ten grand or more at a stock whose board they sit on is not a major part of their portfolios. The signaling effect (#1) may be a stronger effect.<<<br/><br/>Yes, exactly. Perhaps they already own a huge amount of stock and are hoping that a small public buy will raise the value of their much-larger existing holdings. Or perhaps their compensation is tied into the stock price, and are hoping that the publicizing of a small investment will create a much larger personal payoff. >>for many of these insiders, tossing ten grand or more at a stock whose board they sit on is not a major part of their portfolios. The signaling effect (#1) may be a stronger effect.< <

Yes, exactly. Perhaps they already own a huge amount of stock and are hoping that a small public buy will raise the value of their much-larger existing holdings. Or perhaps their compensation is tied into the stock price, and are hoping that the publicizing of a small investment will create a much larger personal payoff.

]]> By: Anonymous http://www.peridotcapitalist.com/2007/09/insider-selling-could-mean-anything.html/comment-page-1#comment-676 Anonymous Sun, 09 Sep 2007 04:12:00 +0000 http://www.peridotcapitalist.com/?p=494#comment-676 Chad, I can think of other "reasons to file an insider buy transaction."<br/><br/>1. Signal that "everything's OK" during a time of low confidence, even if you have no idea about the future. If the insiders are so smart, why were they at a 12-year low in insider buys in February 2005? (link follows)<br/>http://www.cfo.com/article.cfm/3643693?f=search<br/><br/>2. Taking delivery of option-related shares instead of selling them. I believe there's a tax advantage to taking delivery.<br/><br/>3. These insider buys need to be analyzed on a person-by-person and stock-by-stock basis over time, to look at the *net* flow and whether they've demonstrated alpha in their insider buys in the past. Academic studies have confirmed insider alpha, but only for their own stocks....<br/><br/>4.... and unless I'm misreading the market horribly, it's *overall* economic and business confidence that's the concern. So the situation is different than seeing Bausch & Lomb insiders make big buys right after the contact lens solution recall occurred, tanking the stock. That was *stock-specific* and they likely would have superior information. The problems in this market are spread across multiple asset classes, let alone multiple stocks.<br/><br/>5. Finally, for many of these insiders, tossing ten grand or more at a stock whose board they sit on is not a major part of their portfolios. The signaling effect (#1) may be a stronger effect. Chad, I can think of other “reasons to file an insider buy transaction.”

1. Signal that “everything’s OK” during a time of low confidence, even if you have no idea about the future. If the insiders are so smart, why were they at a 12-year low in insider buys in February 2005? (link follows)
http://www.cfo.com/article.cfm/3643693?f=search

2. Taking delivery of option-related shares instead of selling them. I believe there’s a tax advantage to taking delivery.

3. These insider buys need to be analyzed on a person-by-person and stock-by-stock basis over time, to look at the *net* flow and whether they’ve demonstrated alpha in their insider buys in the past. Academic studies have confirmed insider alpha, but only for their own stocks….

4…. and unless I’m misreading the market horribly, it’s *overall* economic and business confidence that’s the concern. So the situation is different than seeing Bausch & Lomb insiders make big buys right after the contact lens solution recall occurred, tanking the stock. That was *stock-specific* and they likely would have superior information. The problems in this market are spread across multiple asset classes, let alone multiple stocks.

5. Finally, for many of these insiders, tossing ten grand or more at a stock whose board they sit on is not a major part of their portfolios. The signaling effect (#1) may be a stronger effect.

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