Insiders Putting their Skin in the Game; POTC's Optimism Grows

DJ InsiderScore.com: Insider Buying Reaching 30-Year Highs By Ed Welsch Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Insiders are buying their own company stocks at rates near the highs of 1975, a research firm said Wednesday, a sign that historically appears near a bottom point for the broader market. More buying by company insiders has been a reliably bullish sign in the past, as insiders have proven better than average investors at calling the direction of their own company stocks and, when looked at as a group, the direction of the overall market. However, during the current downturn even insiders have been fooled. InsiderScore.com's measurement of insider buying also spiked in March and in August and November of last year, though at lower levels. Those spikes marked false bottoms rather than real recoveries. InsiderScore Research Director Ben Silverman said there were more signs that the current wave of insider buying is a more reliable sign of an approaching bottom. Among the signs that give Silverman more confidence is that insiders across all industries are buying heavily, while the last three buying sprees were led by insiders at financial companies. In fact, buying among financial insiders this time is lagging behind insider buying in every other sector, he said. Also, a larger percentage of highly placed executives like chief executive officers and chief financial officers are doing the buying this time, he said, as opposed to directors or junior executives. Statistically, trades made by top executives are more likely to be more savvy than those made by other insiders. The overall rate and quality of the buying, as calculated by InsiderScore's proprietary algorithm, is also much higher this time. The algorithm's score of trades made last week reached 12,594. That's the highest level its ever reached in five years of collecting data, and nearly twice its previous peak of 6,398 after the Bear Stearns collapse in March. During the false bottoms of late last year the score reached in the 4,000-5,000 range, compared to a normal level around 2,000. Silverman says that while exact apple-to-apple comparisons between the InsiderScore algorithm and historical data are hard to make, he believes the level of insider buying exceeds the level after the 1987 crash, when insider buying peaked near a bottom in the market, and is near the level of buying reached in 1975, when the market recovered from a long slump, with the Dow Jones Industrial Average rising nearly 40% during the first half of the year. Before deciding to act on signs of broad insider buying, Silverman said investors should both consider whether insiders at the individual companies they are considering investing in are putting their money where their mouths are by investing in their own stocks, as well as whether the companies are likely to be in a stronger position after the economy recovers. -By Ed Welsch, Dow Jones Newswires; 201-938-5244; edward.welsch@dowjones.com Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/al?rnd=CvsyNdtZ0JgBkppd%2FRLX6w%3D%3D. You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires November 26, 2008 16:00 ET (21:00 GMT) Copyright (c) 2008 Dow Jones & Company, Inc.- - 04 00 PM EST 11-26-08