Insider Buying As An Indicator? I’d Rather Throw Darts

The headline on October 2008 read

Market slide wipes out CEO’s Chesapeake holdings

Aubrey McClendon, CEO of Chesapeake ( $CHK), was and  maybe still is, Cramer’s all time fave guest, an oracle, a sage, the pure genius of the oil patch. Right. I think Cramer idolized Aubrey perhaps as much as his bud Lenny Dykstra or his Harvard pal Elliot Spitzer. They are all great until they’re not. Dykstra will do jail time, Spitzer missed by a hair. Aubrey was kinda sorta on the cusp according to some.

Anyway, Ive been thinking about insider buying lately. Many folks are starting to talk about it as if it was the supreme indicator of the next bull rally. If the market rallies, it won’t be because of insider buying. It was never an indicator that I paid much attention to. Why? Simple, I equate CEO’s to analysts, they may know a balance sheet, but they couldn’t be more clueless in understanding how the market works. McClendon loved his stock, fell in love, and in the crash got blown out with a massive margin call. Not only was it stupid, but it had to be incredibly embarrassing. I actually think Aubrey made a great guest and probably does know oil and gas better than most, but he didn’t know the market. Boone Pickens, one of the smartest energy players on the planet, did a decent job of blowing up his hedge fund (based on energy) because he didn’t see that the market wouldn’t care about him or his energy holdings, when they came to raid the cat house.

Anyway, this is what Trimtabs has to say about all this insider buying:

The number of U.S. companies announcing stock buybacks — 74 so far this month – is growing at the fastest pace since February 2008. However, the actual buyback volume is lagging at $15.8 billion, compared to $30 billion-to-$50 billion level seen monthly since March.

In fact, thus far into the earnings season, buybacks have averaged 4.7 day for a total of $2 billion being bought back, the highest readings since fall of 2008.

Still, the overall volume remains below the pace seen in the previous two earnings seasons, TrimTabs said.

“We have no way of knowing in real time whether companies are using the recent plunge in stock prices to accelerate existing buyback plans,” TrimTabs added.

For one, insider selling has also been picking up as the earnings season comes to an end. In fact, insiders already sold $2.1 billion worth of company stocks in the first two weeks of August, nearing the $2.9 billion sold in the entire of month of July, TrimTabs data showed.

Also keep in mind that insiders were also heavy buyers in late 2007 and early 2008, just before the worst U.S. financial crisis in decades.

P.S. Not calling a crash by any stretch, just sayin’


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