Curran On The News: Two Looks At Insiders
Federal Filings via Dow Jones
ISSUER: FEDERAL FILINGS BUSINESS NEWS
SYMBOL: X.FFI
Two Looks At Insiders
WASHINGTON (FFBN) -- Let me state right up front: I don't know
whether the prices of these stocks are going to go up, down, or stay the
same.
But for investors who like unraveling good mystery stories, a
couple of intriguing hints were dropped in Securities and Exchange
Commission filings on Tuesday. While probably not appropriate for
forming the basis of buy/sell investment decisions on a standalone
basis, they offer good points of departure for further evaluation of
equities investments, as well as some thoughts about a whole sub-genre
of SEC filings that in some quarters of the market is used quite
frequently to assist investment decisions.
The SEC filings in question are so-called "insider" filings, in
which corporate high-ups have to report all buying and selling of their
own firms' stocks. These filings come in several flavors, but a couple
of the most-watched types are Form 4 filings, which report purchases and
sales of stocks, and Form 144 filings which report intentions to sell
shares of stock that were issued privately and were not previously
registered for sale with the SEC.
FFBN began many years ago offering a full feed of insider
buying and selling data each day at the request of subscribers who sift
through this data in an attempt to determine the sentiment of corporate
insiders on their own stock. The theory goes that if insiders -
typically officers or board members who would likely know more about the
health of a company than anyone else - are buying or selling the stock,
then those transactions may be an indicator of future corporate and
stock price performance, and investors would be wise to keep on top of
this gauge of sentiment. A couple of interesting examples from
Tuesday's news file included:
Daniel Phillips, chairman and CEO of Dallas-based consumer
finance company Firstplus Financial Group (FPFG), reported buying
100,000 shares of his firm's stock on Nov. 26 at $37.50 per share.
The most recent purchase left Phillips holding 4.6 million shares of his
company's stock. A look at recent price charts on Firstplus common
stock show the shares sitting around $36 each, way down from their high
of about $60 per share less than two months ago, and closer to their low
this year, in January, of $22 each.
Fred Hirt, a member of the board at teen fashion retailer
Claire's Stores Inc. (CLE), reported selling his entire stake of 56,250
shares on Nov. 12 and 13 at $22.05 to $22.31 per share. Claire's
stores common stock has fallen sharply over the past couple of days,
declining from $22-5/8 last week to close at $20 on Tuesday, but still
well up from the $12 per share level seen at the beginning of the year.
Taking into account no other factors, the conventional wisdom
might say that Firstplus Financial is a good stock to buy, because its
CEO is laying down almost $4 million of his own hard-earned cash to buy
the firm's stock at levels way off of recent highs. The conventional
wisdom might also say just the opposite about Claire's Stores: when a
board member with access to the best information about the firm and it's
outlook is bailing out entirely, then maybe the stock is valued too
high.
But the truth of both matters is that it's very difficult to
gauge another person's investment sentiment solely on the basis of a
single action, and it's probably contrary to all principles of prudent
investing to do so. One old Wall Street aphorism says that there is
only one reason to buy, but many reasons to sell. I've spoken to neither
of the insiders in this case, but in the past I've done follow-up
reporting on dozens of these situations and received almost as many
different kinds of reasons for buying and selling, ranging from tax
implications to financing college educations, to settling messy
divorces. It's a rare instance to find any corporate insider who won't
tell you that his company's stock is worth owning - whether or not the
insider has been buying or selling.
So, what's an investor with a longer-term outlook to do?
Probably the best advice is not to jump the gun, and do
anything rash on the basis of a single piece of information; it's
difficult to imagine many insider transactions that would provide a
strong enough indicator in and of itself to trigger a rational buying
or selling decision. Pulling a lot of quick trades based solely on
insider buying and selling is only likely to make your broker rich. The
second best piece of advice is not ignore these filings either, but to
view them collectively and over the longer term as possible trend
indicators making up one of the many significant piece of the puzzle
that must be assembled and understood before truly informed investing
decisions can be reached.
-- John Curran
Executive Editor
john.curran@fedfil.com
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(END) FEDERAL FILINGS-DOW JONES NEWS 12-03-97
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