So insiders are selling, should you?

By: ispeculatornew
Date posted: 08.14.2009 (4:00 am) | Write a Comment  (0 Comments)

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2007042902001301Insider trading is one of those stats that I take a peak at but rarely act on. What is it? Basically, executives of public companies usually must disclose their holdings and transactions of their own stock. Many analysts look at these informations and pay great attention to them. The logic being of course that if a CEO is selling his stock, chances are the company’s future prospects are not as dazzling as he would have you believe in the company conference calls. That being said, there are many ways for executives to act around this law by doing OTC trades that will not be disclosed and can change quite significantly the stats of insider trading. Because of that, I usually take such numbers and barely glance at them.

But in the past two weeks, the numbers are so one sided that you’d have to be a fool to not try to understand what is going on. Last week, insiders bought for $13 millions and sold for $1,042 millions. Then this week, they bought for $60.1 and sold $1,146!!! Quite incredible. What is going on?? Clearly, some executives are cashing in some major cash. Obviously, it would be easy to simplify and tell everyone that we’re heading for a crash. While that might be true, I really believe there are more factors to be considered.

Of course, insiders have been selling and we could easily conclude that they think their stocks are overpriced. There surely is a lot of that going on. But I also think that many outsiders have been reluctant to sell for so long because of the depressed prices that they are finally selling some of the stock they would have sold months ago had prices been a bit higher. I’m not so convinced that this should be taken as a prediction of the future, but rather more as a relief from some very severe stock drops that are finally reversing. Now of course, these executives do think that the future might not be so bright. I think they mainly see that the risk for a major drop is a lot higher right now than for another major increase in the market, which most of us would agree on in any case.

What are your thoughts on this?

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