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Corporate Insiders Bucking the Trend


Corporate insiders, who are presumed to be the most knowledgeable investors... are buying shares of their own firms with gusto, and largely refraining from sales...


The past week has brought a lot of selling from the public and distressed hedge funds, pushing the S&P 500 down to its 200-day moving average. But corporate insiders, who are presumed to be the most knowledgeable investors, as a group have bucked the trend -- buying shares of their own firms with gusto, and largely refraining from sales.

According to data from Thomson Financial, insider purchases in the first ten days of August totaled as much as the entire month of July, while sales were relatively modest. The sell/buy ratio for the month is now at $11.66, the lowest multiple of the past year. "While the rest of market participants appear frantic, insiders continue to be confident and at ease," Thomson analysts said in a note to clients on Friday.

The data shows that insiders at financial companies are the top buyers, while consumer discretionary and energy insiders are right behind. And strangely enough, in a completely counter-intuitive condition, insiders at consumer staples companies – which conventional wisdom suggests would benefit the most from an economic downturn -- are the most aggressive sellers. Not showing that they want to increase their own allocations to defensive positions, corporate insiders at these companies have posted a sell/buy ratio of $107.20, or more than ten times that of the broad market.

According to Thomson data, the top five industries for insider buying are equity retail REITS, mortgage-backed REITS, regional banks, investment banks and energy concerns. Five insiders in these groups who bought more than $1 mln worth of their own stock recently include Bernard Freibaum of General Growth Properties (GGP), Ian Cockwell of Brookfield Homes Corp (BHS), Michael Marks of Schlumberger (SLB), Harris Morrissette of Energysouth (ENSI), and Daniel Cohen of Rait Financial Trust (RAS).

Of course, it must be noted that insiders are not infallible investors. William Friedman, the founder and chief executive of New York real estate development company Tarragon Corp. (TARR), bought more than $1.2 mln shares from August through December last year at $10 to $12. That seemed cheap compared to a high of $28 in mid-2005, but today… not so much. Shares hit $1 last week amid doubts about its ability to continue to finance its projects.
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