Corporate Insiders in Buying Frenzy

As the market races to the bottom, corporate insiders are racing right along buying with both hands. For the past four weeks, insider activity as monitored by InsiderScore, corporate executives and board members have been in what can only be described as a buying frenzy.

According to InsiderScore, “insiders are more bullish now than at any time since the two weeks immediately following the Black Monday market crash of October 1987“:

Source: InsiderScore.com and SentimenTrader.com

I checked with a similar service that tracks Canadian stocks: Canadian Insider and not surprisingly, the Canadian market is showing a similar pattern of insider buying.

The pattern was especially noticeable for Canadian REITs. And I’m not referring to ESOP where there is a preset schedule. REIT insiders are going out into the market and buying of their own volition. RioCan REIT, which I mentioned a few days ago, had 11,440 units purchased just on November 19th and November 20th, as an example.

The same can’t be said about precious metal stocks. For example, Barrick (ABX) and NovaGold (NG) do not show any buying interest from corporate insiders. If anything, there is a slight bias of selling. Which means that while insiders as a group are very bullish, they are still being selective. The k-ratio fell to 0.23 and has rebounded with Friday’s move in gold. That’s getting close to an attractive level for gold stocks, but if we are headed for a deflationary spiral, gold doesn’t stand a chance. But so far, the Philadelphia Gold Bugs Index (HUI) has bounced off the 175 level which I mentioned would act as support.

There’s Always a But…
A caveat to consider: in September 2007 insiders were enthusiastic buyers. Although not nearly as now. That uptick in buying was, of course, not very profitable since most stocks topped out shortly afterward. The question now is, does today’s frenzy mean that insiders see real value or will we simply see the market fall more and insiders get even more excited about buying?

Whatever the answer to that, the solace that the current buying pattern does provide is that insiders are not selling. The worst possible scenario after all, would be to see the “smart money” insiders bail out after the market’s face melting 50%+ decline.

Comments

[Offgrid:]

I think these buyers will regret buying - unless they are selling the same day. 2009 will see further losses.

2008 Nov 24 10:55 AM

[rockymtnway:]

It's interesting that finding silver and gold in coin denominations is getting very difficult and people don't know where else to stick their money in the face of a looming recession. While they may be foolish given the current deflationary trend, if the dollar begins to lose value due to their growing debt, things could turn around quickly.

I wonder to what extent the lack of insider buying is simply because of a fear of the markets right now rather than sound financial strategy. Seeing ABX trading in the low $20s recently with gold still over $725/ounce is a clear sign that things are out of whack.

2008 Nov 24 12:39 PM

[drbob66:]

Interesting stats. I've noticed a lot of insider buying in the stocks that I regularly watch (and some that I own)...and I've bought along with some of them. Many fo the insiders were early, of course...since they probably just couldn't imagine that their stocks would get beaten down so badly within a few months. "Offgrid" thinks that the insiders will regret their purchases, but I doubt it...I suspect that many of them simply have a longer time horizon for their investments (i.e., they're investing, not trading), and don't really worry if the stock goes down a little more. I've even seen a few instances where insiders have bought additional shares after last weeks declines. My opinion is that these guys generally should have a pretty good idea as to how their business will do in the long term.

2008 Nov 24 01:26 PM

[wsigler:]

I'm to the point where I don't trust the actions of any corporate insiders. I suspect the amount of money they put at risk compared to their net worth is miniscule. Further, should their investments decline in value, they may be able to sell and write off against gains elsewhere - or if no writeoffs, no big deal. Why, then, would they be buying? Because they're well aware that they're watched and what better way to attract the public's buying in hopes of propping up stock price...

2008 Nov 25 03:37 PM