Are Insiders Selling or Buying?

Looking at current articles, news, and commentary on MarketWatch and Bloomberg, I found two interesting pieces that seemed almost contradictory.

The first from Bloomberg ("Insider Selling Jumps to Highest Level Since 2007"):

Insiders from New York Stock Exchange-listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients.

That’s the fastest rate of selling since October 2007, when U.S. stocks peaked and the 17-month bear market that wiped out more than half the market value of U.S. companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4 percent slide in the S&P 500 in August 1992.

And the other article from MarketWatch.com ("The stubbornly bullish insiders", by Mark Hulbert). The link wasn’t labeled like that on the home page and it was small and almost hidden:

It's now been 29 weeks in a row that this ratio (sell-to-buy) has been less than 2-to-1, according to Vickers. The latest reading of this sell-to-buy ratio is 0.72-to-1. At least historically, these are very bullish levels.

A sell-to-buy ratio of 0.72-to-1 means insiders were selling $0.72 for every $1 they were buying.

Those are very different numbers. One showed that insiders were net sellers recently and the other showed that insiders were net buyers. The difference is probably in the data sources; the article from Bloomberg was using data from Washington Service, while Mark Hulbert was using data from Argus Research Group.

The figures would certainly be slightly different due to different methodology and the group of companies the ratio is being calculated from, but the difference in the two ratios is huge. I would think that the two ratios should at least both show net selling or net buying by insiders.

Comments

[drevno:]

The noted discrepancy in numbers shows how precarious - and unreliable and dangerous for investors - is the state of statistical numbers reporting, and of the financial reporting in particular.

It would be very helpful for the investor community if a consistent, verified and timely set of numbers were available for a selected (all?) important variables.

But what is the chance of it? The majority of 'official' numbers are frequently revised, sometimes several times over; the componies tend to deliver self-serving numbers; and there's hardly any consistency among the methodology and hence the results from the various reserach groups and analysts.

Take your pick. Caveat emptor!
Or fly by the seat of your pants...

Apr 28 04:56 AM

[Steven Hansen:]

this just underscores the reality to not rely on any one indicator.

how hard would it be for the government to fabricate gdp numbers if the economists believed they were doing so in the national interest. Recent developments have revealed that even CEO's of very large banks can be persuaded to do things for the good of the country.

every day things become more and more bizarre.

Apr 28 06:31 AM

[kelm:]

The interpretation of that indicator is also fraught with danger. Typically insider selling is bearish for the company and when it occurs across the broad spectrum of companies is bearish for the market. But we know nothing bout where the proceeds of the selling are going. Is this simply mass diversification on the part of people who had most of their wealth tied up in the company they worked for and who, needing to protect their retirement and kids college are selling and diversifying? Or is this a vote on their companies prospects and the economies prospects in a very uncertain world? Wish we had an additional parameter that said were the money went to.

Apr 28 10:59 AM

[AndrewBaker:]

I've never relied much on insider buys and sales as there are too many reasons for both which have nothing to do with the companies' prospects. Raising cash, taxes, gifts to family and/or charity, portfolio diversification etc etc etc ... on the sell side and just as many on the buy side. Add to this the glaring discrepencies in the different reporting media data and the best use for these trades are as confirmers of something you think you already know.

Apr 28 02:18 PM

[Geoffrey Ching:]

Thanks for your comments,
I certainly agree that using these sentiment indexes is probably not a good idea. I think the indexes would be more believable if the methodology was disclosed.

May 01 07:55 PM