Insider Selling Could Mean Anything, Whereas Buying Can Only Mean One Thing

At Peridot Capital, I tend to ignore insider selling completely. Sure, a lot of sales inside a company can indicate management feels their stock is overpriced, but there are dozens of other reasons top brass sell stock, and they are never required to give the reason for their actions. Investors should be able to tell if a stock is grossly expensive or not on their own, if they indeed manage their own money, so insider selling data really can’t be relied upon.

Insider buying, however, I believe is crucially important. While I can make a laundry list of reasons why someone chooses to sell a stock, the reasons to buy are much fewer in number. In fact, there’s only one (to make money). It’s not surprising that studies have shown much more meaningful correlation to stock performance and insider buying, as opposed to insider selling. And with that, I’ll leave you with the following Associated Press story that ran on Friday evening. To those who think there are bargains among the wreckage of the latest correction, you’re not the only ones…

AP: Insider Buying Set Records in August

Friday September 7, 6:17 pm ET

NEW YORK (AP) — Insiders purchased shares of their companies’ stock at a record pace in August, analysts said, as credit market deterioration threw stocks into a tailspin during the month. The trend of buying among insiders, who are typically long-term investors, was one of the few bullish signals last month, said, a Web site that tracks insider transactions.Company Insiders Bought Stock at Record Pace in August As Credit Market Woes Stunned Market

According to Thomson Financial, insiders drove buying volumes to their highest monthly levels since 1990, with $465.5 million in purchases.

Insiders in the energy, retail and insurance industries led the buying spree, said analysts in a research report released Wednesday.

In the energy sector, insider buying was at its strongest since the spring of 2005, boosted by large purchases by RPC Inc. Chairman Randall Rollins, Cheniere Energy Partners LP Chief Executive Charif Souki and insiders at other companies. Schlumberger Ltd. Director Michael Marks and Nustar GP Holdings LLC Director William E. Greehey also bought shares as their companies’ stock came down from 52-week highs.

In the retail sector, which was hurt as economic uncertainty slowed shopping this summer, top executives at several companies bought stock as shares fell to 52-week lows in August. American Eagle Outfitters Inc. Chairman Jay Schottenstein and other insiders bought 184,575 shares. Barnes & Noble Inc. Chairman Leonard Riggio bought 100,000 shares, his first purchase in two years. The CEO of Best Buy Co.’s international operations bought 11,300 shares, the largest insider purchase of the electronics retailer’s stock in more than two years.

In the insurance sector, more than 10 insiders bought shares at Conseco Inc. after the company’s stock plunged in August. Also, Prudential Financial Inc. Chief Financial Officer Richard J. Carbone bought 10,000 shares last month. Unitrin Inc. and American Financial Group Inc. were among other insurance providers that reported large insider purchases in August.

In other sectors, Yahoo Inc. President Susan Decker and Director Arthur Kern bought more than 65,000 shares of the Internet search company, which has slipped against rival Google Inc.

Also, three directors of American Express Co. bought 63,000 shares of the credit card company in August.