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Strategies & Market Trends : Trend Setters and Range Riders -- Ignore unavailable to you. Want to Upgrade?

To: backman who wrote (18660)	6/1/2002 10:41:57 AM
From: Susan G	Respond to of 26752

Here is that entire NY Times article on insider selling... I read it yesterday and saved it to post. Who Wants to Buy Stock? Not the Insiders By and large, most Americans appear to be bullish on the economy and at least neutral on the stock market. Mutual fund sales are going well, and housing and consumer spending statistics show an economic recovery that is on track. But there is one interesting group that has turned more bearish than at any time in years: corporate insiders. Advertisement "There has been huge, huge insider selling," said Phil Roth, the veteran technical analyst at Miller Tabak, referring to legal sales by corporate officers and directors, not to illegal trading on inside information. He noted that over the last eight weeks, there had been 4.2 insider sales for every insider purchase reported. There are usually more open-market sellers than buyers, since insiders get a lot of their stock by exercising options, but this ratio is higher than it ever was in the 1990's bull market. That is a sharp turnaround from last fall, when insiders suddenly stopped selling when the market reopened after the Sept. 11 terrorist attacks. That may have reflected patriotism, or at least a concern that insiders who sold stock would look bad when their transactions were made public. Or maybe they just thought prices were unreasonably cheap. If so, that opinion has changed. Whatever their motivation in October, insiders who bought stock generally did well as the market made a dynamic charge in the fourth quarter. Now some of the same insiders are selling the shares they bought then. Others who did not buy are selling, too. Just what is causing the selling is worthy of speculation. On the benign side is the suggestion that a lot of insiders have learned from Enron's 401(k) debacle how unwise it is to concentrate one's wealth in any stock, particularly that of one's employer. The selling would therefore simply reflect a desire to diversify. Robert Barbera, the chief economist of Hoenig & Company, offers a more cynical Enron lesson, this one based on the rapid rise in the number of accounting investigations being started by the Securities and Exchange Commission. "If you believe people cooked the books, then right now the cooks should be selling," he said. In fact, he added, executives who acted properly may also be concerned. "We are now at a point where accepted accounting principles of the late 1990's that were used in a great many companies can be seen as aggressive," he said. "If you are an insider who knows you were as aggressive as the next guy, you've got some anxiety." Or maybe a lot of insiders simply think their stocks are expensive. Reported profits rose more in the 1990's than did real earnings, thanks to that aggressive accounting. But over the next couple of years, as auditors enforce more conservatism, reported profits may not do as well as real earnings. Will investors be willing to pay higher price-earnings ratios to reflect that higher quality? Or will they be scared that there are more problems yet to be uncovered? David Coleman, the editor of the newsletter Vickers Weekly Insider Report, which compiles the insider statistics, points to one exception to the trend. Form 144 filings, which must be made by insiders selling shares they owned before the company went public, are flat. Evidently, shares of initial public offerings of recent years have fallen so far that few insiders want out. He suggests that could mean some of these companies are getting to be cheap. Insiders do not know everything, of course. As a group, they failed to anticipate the bursting of the bubble in early 2000. But they rightly turned negative before last summer's market swoon, which began months before Sept. 11. That selling came as companies felt the economy weakening around them. This wave may reflect fears that the recovery will not live up to expectations. nytimes.com