At GuruFocus we pride ourselves on the Investment Gurus we keep track of. These individuals are typically excellent asset allocators and have achieved formidable track record. However, even this group of individuals are at information disadvantage when compared to the company insiders. Company insiders -- CEO, CFO and Directors – live and breathe the company’s operation and they know how well the company’s doing and what the future holds for the company. So it is fair to say that insiders’ money is the smartest money of all.
But the trick thing is that one cannot categorically claim all insider-buying activities are buying signals, on the other hand, not all insider-selling activities are signals to sell. Typically, company insiders are net sellers as they have other ways to acquire shares from the company than buying from the open market. They do need to sell stocks for multiple reasons, such as needing tuition money or buying a new house. They even sell company’s stock simply because they wish to diversify their portfolio. In another word, just because an insider is selling stocks does not mean he/she think the stock is too expensive.
Insider buying, on the other hand, is a vote of confidence as one has to put up real money in exchange for the company’s stock. Given all the other investment options, one has to agree that the company’s stock is the best investment at the moment to buy into the stock.
When multiple insiders do the same thing, either buying or selling, an investor may want to pay attention.
In the hay days of March, 2009, GuruFocus reported that a host of company insiders of Well Fargo Company (WFC, Financial) bought the company’s stock. Specifically, five directors bought a total of 123, 100 shares during the short period between January 29 to March 10, 2009, when the stock reached below $10 a share. Needless to say, the trades have been very profitable. The market as a whole has been doing very well, but Well Fargo stock has done much better.
Now the stock has more than tripled, and guess what, the smart money is at work again:
Four of the company’s insiders sold about 100,000 shares together during the month of March, 2010.
And we are not at the end of March yet.
It cannot be that they all need money for tuition, or they are buying houses at the same time, or… who knows, it just does not reflect well on the stock. If the stock continues to rally, the rally will make the insiders look bad – despite the advantage of possessing inside information, they are not that much a group of stock traders. If the stock goes down from this point on … well, just remember you were warned here at GuruFocus first.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and company insiders for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
But the trick thing is that one cannot categorically claim all insider-buying activities are buying signals, on the other hand, not all insider-selling activities are signals to sell. Typically, company insiders are net sellers as they have other ways to acquire shares from the company than buying from the open market. They do need to sell stocks for multiple reasons, such as needing tuition money or buying a new house. They even sell company’s stock simply because they wish to diversify their portfolio. In another word, just because an insider is selling stocks does not mean he/she think the stock is too expensive.
Insider buying, on the other hand, is a vote of confidence as one has to put up real money in exchange for the company’s stock. Given all the other investment options, one has to agree that the company’s stock is the best investment at the moment to buy into the stock.
When multiple insiders do the same thing, either buying or selling, an investor may want to pay attention.
In the hay days of March, 2009, GuruFocus reported that a host of company insiders of Well Fargo Company (WFC, Financial) bought the company’s stock. Specifically, five directors bought a total of 123, 100 shares during the short period between January 29 to March 10, 2009, when the stock reached below $10 a share. Needless to say, the trades have been very profitable. The market as a whole has been doing very well, but Well Fargo stock has done much better.
Now the stock has more than tripled, and guess what, the smart money is at work again:
- Sell:: Executive Vice President Michael J Loughlin sold 14,405 shares of WFC stock on 03/24/2010 at the average price of 30.97, the price of the stock has increased by 0.81% since.
- Sell:: Sr. Executive Vice President Mark C Oman sold 20,000 shares of WFC stock on 03/22/2010 at the average price of 30.5, the price of the stock has increased by 2.36% since.
- Sell:: Senior Exec. Vice President David M Carroll sold 168,000 shares of WFC stock on 03/09/2010 at the average price of 28.88, the price of the stock has increased by 8.1% since.
- Sell:: Executive Vice President Avid Modjtabai sold 31,278 shares of WFC stock on 03/08/2010 at the average price of 29.04, the price of the stock has increased by 7.51% since.
- Sell:: Sr. Executive Vice President Mark C Oman sold 20,000 shares of WFC stock on 03/02/2010 at the average price of 28.1, the price of the stock has increased by 11.1% since.
Four of the company’s insiders sold about 100,000 shares together during the month of March, 2010.
And we are not at the end of March yet.
It cannot be that they all need money for tuition, or they are buying houses at the same time, or… who knows, it just does not reflect well on the stock. If the stock continues to rally, the rally will make the insiders look bad – despite the advantage of possessing inside information, they are not that much a group of stock traders. If the stock goes down from this point on … well, just remember you were warned here at GuruFocus first.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and company insiders for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
