Sort of like this?
Posted on 08/16/2003 4:09:00 PM PDT by sarcasm
NEW YORK (Reuters) - Think it's time to buy stocks now the market has stabilized after its spring rally? Many corporate insiders don't.
Executives sold about $32 worth of their own companies' stock for every $1 they bought in July. That is the most bearish they have been since May 2001, and it marks the third straight month that the ratio of selling to buying has topped the $20 level, according to research firm Thomson Financial.
While Wall Street experts say there could be many reasons for employees to trade their own companies' shares, executives' recent reluctance to buy may not bode well for the stock market in the days to come.
``Any time investors stop buying, it signals that they think they will earn better returns someplace else,'' said Charles Elson, a professor of corporate governance at the University of Delaware. ``For us investors, it's not a particularly good sign.''
The last time the market experienced three straight months of such bearishness by insiders was July to September of 2000. Six months later, the Standard & Poor's 500 index (.SPX) had dropped 19 percent, and a year later, the index was down 28 percent, said Lon Gerber, director of insider research at Thomson Financial.
``Is that going to happen now? We don't know for sure, but it's just not a very encouraging signal,'' Gerber said.
Money managers follow trading by employees since insiders often have a close-up view of their company's day-to-day progress and so are thought to have a particularly keen sense of its financial health.
SELL AT THE TOP
Executives sold $2.4 billion worth of their own companies' stock in July, a number that is right in line with the historic five-year monthly average for selling. But they bought only $73 million worth of stock last month, giving July the lowest monthly level of insiders' stock purchases in two years, according to a Thomson Financial report.
Stocks barreled higher this spring as investors bet on a rebound in the economy and corporate profits in a rally that drove the Standard & Poor's 500 index (.SPX) up about 26 percent from its 2003 low on March 11 to its closing high for the year on June 17.
The S&P 500 is still up more than 23 percent from its mid-March low and up more than 12 percent so far this year.
Among the big sellers over the past six months have been executives at Dell Inc. (DELL.O), Microsoft Corp. (MSFT.O) and Mandalay Resort Group (MBG.N).
Between May 22 and May 27, for example, Michael Dell, the chief executive officer and founder of Dell Inc., sold about 10 million shares worth about $279 million, according to a Securities and Exchange Commission filing. The week before he sold, Dell stock surged over $32, the first time it had seen that level since November 2000. The stock now trades slightly below $32 a share.
Michael Ensign, Mandalay's chairman, CEO and chief operating officer, from mid-June to mid-July disposed of about half of his stake in the casino operator -- selling a total of about 2.9 million shares worth about $95 million, according to data collected by Thomson Financial.
Mandalay Vice Chairman William Richardson, another top shareholder in the company, also cut his stake about in half during that period to rake in about $95 million.
The sales followed a jump in the company's stock price that came after Mandalay said it would pay a dividend for the first time. The shares have climbed further since then.
In May, Steve Ballmer, Microsoft's chief executive and the long-time partner of co-founder Bill Gates, sold shares in the world's largest software maker for the first time in 12 years, getting rid of about $1.4 billion worth of his holdings in the company, federal securities filings showed.
RISKY BUSINESS
But counting strictly on insider trading to gauge the market's future direction can be a risky proposition, some analysts say.
Just because executives are not buying their own companies' shares does not necessarily mean they are not buying stocks at all. Plus, they are not always as prescient about their companies' futures as one might expect.
``How do we know their sense is good? Maybe they're misjudging it. I can think of examples where you had insiders buying, and the company went broke,'' Elson said.
In addition, employees sometimes receive stocks on a regular basis as part of their pay packages and selling is a way of cashing in.
``Clearly there are individual situations where stocks that have been bruised in the market and an insider will step up and buy stock, that I think can be relevant,'' said Rick Meckler, president of investment firm LibertyView Capital Management.
``But as long as stock is going to be used for compensation, you would expect people to be net sellers over time.''
That explains all of it to me.
In a period where most stock option were worthless, a bull run will naturally bring people anxious to cash out into the market.
It's not a sign that the recovery is over.
Sort of like this?
Not to me either, but don’t go by me.
I know a couple of companies, now public, where people are nearing retirement. They’ve been granted, and have purchased, company shares for the last 35+ years. Those shares have accumulated and split many times.
Today they’re sitting on 15 – 30+ million dollars worth of company stock. They’re being leaned on hard to diversify so they don’t take a hit like Enron/UAL employees, etc. should something go wrong.
They were hired on decades ago as part-time help. Now they’re executive management. They’re diversifying, retiring, buying toys, estate planning – it’s not necessarily a nefarious reason that’s behind it.
Richard W.
The outlook of the world today is for the greatest era of commercial expansion in history. The rest of the world will become better customers."
-Herbert Hoover, speech at San Francisco, July 27, 1928.
"Unemployment in the sense of distress is widely disappearing.... We in America today are nearer to the final triumph over poverty than ever before in the history of any land."
-Herbert Hoover, speech accepting the Republican nomination, Palo Alto, CA, Aug. 11, 1928.
"Secretary Lamont and officials often Commerce Department today denied rumors that a severe depression in business and industrial activity was impending, which had been based on a mistaken interpretation of a review of industrial and credit conditions issued earlier in the day by the Federal Reserve Board."
-The New York Times, Oct. 14, 1929.
"The fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis."
-Herbert Hoover, statement to the press, Oct. 25, 1929.
"Conditions do not seem to foreshadow anything more formidable than an arrest of stock activity and business prosperity like that in 1923. Suggestions that the wiping out of paper profits will reduce the country's real purchasing power seem far-fetched."
-The Wall Street Journal, Oct. 26, 1929.
"Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks. We are continuing and will continue our purchases in substantial amounts at levels which we believe represent sound investment values."
-John D. Rockefeller, Sr., Oct. 30, 1929.
"There are no great failures nor are there likely to be."
-Monthly Review, National City Bank, Dec. 2, 1929.
"Never before has American business been as firmly entrenched for prosperity as it is today. Steel's three biggest customers, the automobile, railroad and building industries, seem to me to justify a healthy outlook. This great speculative era in Wall Street, in which stocks have crashed, means nothing in the welfare of business. The same factories have the same wheels turning. Values are unchanged. Wealth is beyond the quotations of Wall Street. Wealth is founded in the industries of the nation and while they are sound, common stocks may go up and stocks may go down, but the nation will prosper.
-Charles M. Schwab, Chairman of the Board, Bethlehem steel Corp., address before the Illinois Manufacturers Association, Chicago, Dec. 10, 1929.
"I see nothing in the present situation that is either menacing or warrants pessimism. During the Winter months there may be some slackness or unemployment but hardly more than at this season each year. I have every confidence that there will be a revival of activity in the Spring and that during the coming year the country will make steady progress."
-Andrew W. Mellon, New Year's Day message, Jan. 1, 1930.
"Trade recovery now complete, President told. Business survey conference reports industry has progressed by its own power. No stimulus needed. Progress in all lines by the early spring is forecast."
-New York Herald Tribune headline, Jan. 24, 1930.
"The psychological effect of stock market activities on business is, I think, usually overemphasized.... I do not think that the fall in security prices will itself cause any great curtailment in consumption,..."
-E. H. H. Simmons, President, The New York Stock Exchange, Jan. 26, 1930.
"Business will be all right. I am not in the least pessimistic. You notice that everybody is anxious to be at work; that is one of the healthiest signs of the times. -- There is no such thing as overproduction.
-Henry Ford, quoted in the New York Herald Tribune, July 31, 1930.
"The average man won't really do a day's work unless he is caught and cannot get out of. There's plenty of work to do, if people would do it."
-Henry Ford, quoted in The New York World-Telegram, March 18, 1931.
"With the exception of the difficulties that have arisen as a result of the drastic deflation of commodity prices, the business horizon is clear.... we all know that the present period cannot long endure."
-Richard Whitney, President of the New York Stock Exchange, address before the Merchants Association, New York, Sept. 10, 1930.
"The country is not in good condition."
-Calvin Coolidge, Jan. 20, 1931.
Richard W.
Yeah, but how many times does it have to be right to really screw up your day? ;)
So the evidence is not that insiders were selling an unusually large amount of stock, but that they were buying less than usual. That does not strike me as a rush to get out of the market.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.