Panic or Profit: What's Your Next Move?

Here's a short summary of the state of our economy, courtesy of some recent Wall Street Journal headlines:

• "Financial CEOs Fear Recession"
• "Economy Brings Bad News for Publishers"
• "Stocks Shaky as Earnings Offer Investors Few Clues"

Yet thanks to better-than-expected earnings from bellwethers Citigroup (NYSE: C), Google (Nasdaq: GOOG), and Caterpillar (NYSE: CAT) this week, stocks surged on Thursday and Friday.

Experts can't agree: Is now is the time to panic?
Yet as recently as last month, experts prepared for the worst. Economists surveyed by the Federal Open Market Committee saw 38% chance of recession -- a three-year high.

Against this confusing backdrop, however, an interesting trend has emerged. Insiders at many large companies have been buying stock ... in spades.

That's right ... spades
According to an April 3 research report from Thomson Financial, "Insiders have spent over $800 million on new purchases in the last three months, ranking as one of the best buying rounds since 1990."

What's more, that buying has been taking place across sectors. Over the past few weeks, for example, we've seen insiders buying at ConAgra Foods (NYSE: CAG), CenterPoint Energy (NYSE: CNP), and MGIC Investment (NYSE: MTG).

The insiders here are taking a stand against market sentiment, even if they won't be proved right in the near term. That's the point, of course. To the insiders -- the people in the know -- these stocks look cheap. And rather than panic at the onslaught of bad news, they're preparing their portfolios to profit for the long term.

Time for you to choose
Insiders aren't the only ones starting to snap up their hated issues; some smart money managers are doing the same.

Legg Mason Value Trust guru Bill Miller wrote in a recent shareholder letter that he's looking closely at some hated issues: "The new [market] leadership will be U.S., large-cap, dollar-based, and grow to encompass what no one wants to own today, especially financials and consumer. ... Just as the right thing to do in 2002 was to buy what everyone was panicked about, I think the greatest gains over the next five years will be made in those securities people are panicked about today."

Of course, saying you'll buy what no one wants to own and actually doing so are two very different things. And I'd say it's even more difficult today than it was in 2002.

A brave new world
Buying stocks today and in the near future will take courage. Fortunately, insiders appear to be leading the way.

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This article was first published Dec. 18, 2007. It has been updated.

Tim Hanson does not own shares of any company mentioned. The Fool has a disclosure policy ... and its next move is to make some hot chocolate.