Insider stock buys hit 4-year high

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Insider stock buys hit 4-year high

This is very bullish:

Throughout the recent market turmoil, executives and directors of public companies have invested heavily in their own companies, according to a news report late Tuesday.

Total insider buying in the United States reached $252 million in August, the highest level since 2003, according to the Financial Times. The month normally averages $186 million in such trades.

...

Meanwhile, insider sales have dropped correspondingly, to $2.9 billion compared to a four-year monthly average of $4 billion average, the paper reported.

By Theo at 2007-08-29 12:36 | Stocks | Theo's blog

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Bank Insiders

I read an article at bloomberg recently about all the insider buying at big banks. I'm a little nervous about it. David Dreman has said to look at banks (albeit, he hasn't bought yet). I don't think that they are depressed enough yet.

By smtkr at Wed, 2007-08-29 16:03 | login or register to post comments

RE(2): Bank Insiders

Agreed. I don't think this is close to being over.

By Theo at Wed, 2007-08-29 16:43 | login or register to post comments

RE Bank Insiders

How do you feel about the large banks such as Citigroup or Bank of America? I think the stars are more aligned now then they have been in years. Let me give you a few reasons why and I'd like to know what you think.

1. Everyone is bearish on financials right now. At some point there is no one left to sell. I can't time when the bottom will occur but I believe it will be in the next 6 months or so.
2. The best investors in the world are buying or own large positions in financials: Eddie Lampert, Warren Buffett, Ahmet Okumus, First Eagle, Oakmark, Davis, Dodge&Cox, etc. Most started buying at prices higher than we have now.
3. Price/Book ratio on these stocks are the lowest they have been in 15 years. Citigroup P/B has dropped below 2 for the first time since 1996. Back then it stayed below 2 for about 9 months before moving up to 5 during the bubble. You could write off the entire portfolio of sub-prime loans in some of these banks and the book value would still be attractive.
4. Dividend yields are very good. Citigroup has a yield of 4.5% which is close to what you get in a money market. I highly doubt the dividend will be cut in the short term. In the long term it will keep increasing over time and easily overtake money market rates in a few years.

In my opinion Mr. Market has offered up a once a decade fat pitch where psychology and fundamentals are both bottoming in the next 6-9 months.

By biscosc at Thu, 2007-08-30 13:35 | login or register to post comments

Large Banks

Biocosc,

I will make the bear case and leave it to others to present the bullish argument. Here are my bearish comments to your points:

1) Yes, people are more worried now than they have been for a while. If this is the start of a bear market, prices could fall for years. The Nikkei is a classic example. There are still lots of people left who could sell. I think a good contrarian indicator would be when the brokerages come out with sell recommendations. As it sits right now, everybody still has the "buy the dips" mentality.

2) All very true. One name not on your list is Marc Faber. He's saying stay away from the US.

3) I firmly believe that Price to Book is very much a guessing game with large financial companies. Very few (if anyone) can understand their financial statements. I think at best you are buying a black box since any valuations of their derivative positions and credit positions are subject to too many assumptions to be useful.

Sub-prime could very well be the tip of the iceberg. If people can't carry mortgage payments, how far behind are student loans, car loans and credit cards? The entire debt structure could become suspect.

4) The fact that the dividend yield is close to the money market rate shows that the market is not pricing in the chance of a loss of capital. Historically, dividends yield more than the risk free rate to compensate investors for the chance of loss of capital.

Like I said, that's the bear case. I'm sure somebody else can give you the sunny version.

SunTzu

By Suntzu at Thu, 2007-08-30 20:23 | login or register to post comments

Re: Large Banks

Thanks for the good points SunTzu. Everything you say could very well unfold over the next few years but I sure hope not!

I do have a question about Marc Faber. I remember hearing he called the '87 crash but how is his record besides this? My impression (absolutely no reseach behind it) is he is one of these guys that has called 7 out of the last 2 recessions and in the process missed out on the long term compounding of owning a piece of American business. Does he ever change his bearish stance?

By biscosc at Thu, 2007-08-30 21:22 | login or register to post comments

Faber

Biscosc,

Like I said, that's the bear case. It's an extreme example. Here is a bio of Marc Faber. I don't think he's a perma-bear. He makes a really good macroeconomic case for most of his calls. His book mentioned on the website (Tomorrow's Gold) is a great read if you are interested in historical patterns of economic cycles.

Good luck with the banks!

SunTzu

By Suntzu at Thu, 2007-08-30 23:37 | login or register to post comments