Should You Be Buying If Insiders Are Selling?http://www.fool.com/investing/general/2009/09/21/should-you-be-buying-if-insiders-are-selling.aspx Ivan Martchev
September 21, 2009
Insiders have been aggressively selling stocks of late. As my Foolish colleague Tim Beyers pointed out earlier this month, research from TrimTabs indicates that the ratio of insider selling to insider buying is running at 30.6:1, which is the highest number since the firm started tracking the data in 2004. In addition, companies have been record net sellers of stock, to the tune of $105.2 billion over the past four months.
Meanwhile, short interest has fallen dramatically, and margin debt has spiked upward. From a sentiment perspective, there are also signs of extreme optimism just as insiders are selling into the rally: 51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007.
So, what should you do?
A different kind of insider selling
The problem was that Genoptix was still majority-owned by venture capital funds that needed to monetize their investment. So even though the company kept delivering great financial results, the VC funds kept selling shares. There was a secondary offering in February 2008 that represented only insiders that brought the insider ownership from 59% to 48%. Still, the remaining overhang has been pressuring the shares ever since, despite the company's being consistently profitable and beating its earnings estimates every quarter. Genoptix is an example of benign insider selling, in my opinion.
Bullish insiders are like needles in a haystack