Insider selling:buying remained at an extraordinarily lopsided ratio for the latest week. The latest data for the week ending October 16th shows that insiders sold $320.8MM worth of stock while insiders purchased just $32.81MM worth of stock. This was an increase from last week’s $16MM in buying. The high levels of selling are not what alarm us so much (although it should not be ignored). Insiders sell for a number of reasons, but the low levels of buying remain historically low and show that insiders continue to display very little faith in their own companies going forward.
While this earnings season is turning out almost exactly as we expected, we believe the low level of revenue growth is the best signal of whether the impending recovery is sustainable or not. I continue to believe that the revenue recovery will be below trend and as analysts catch-up with the margin growth earnings will eventually begin to disappoint in early to mid 2010. Ultimately, insiders will prove to be have been quite prescient.
Figure 1 (Insider selling)
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Figure 2 (Insider buying)
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Source: Finviz
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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