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Insiders' Selling & Beating Warren Buffett At His Own Game


There are plenty of investors who monitor the buying and selling by company insiders, i.e. senior management and substantial shareholders. There were two major waves of buying by insiders, in November last year and March this year, and they have proven to be very astute in timing the markets. Now insiders have been net sellers for 14 consecutive weeks. That might not be as bearish an indicator because the length of time is a lot longer than usual, indicating that this time the insiders could be wrong. Secondly, the fact that the net selling is so prolonged may hint at more long term institutional and private funds are re-entering the markets. Even insiders cannot always be right.

Insiders are selling their company shares at a pace not seen in two years, providing further evidence that the recent stock-market rally may be coming to an end.

Insiders of S&P 500 companies have now been net sellers for 14 consecutive weeks, according to research firm InsiderScore.com. That marks the longest stretch since June 2007, which was just a few months before credit markets started shutting down and a bear market for U.S. stocks began.

Stock purchases by highly placed executives, such as chief executives and chief financial officers, has been a bullish metric in the past, suggesting a broad market rally was imminent. A wave of buying last November and early March each came right before more than a month’s worth of stock-market rallies.

But company executives have shifted from buying binges to selling splurges, suggesting insiders are questioning the recent three-month rally that has seen major indexes increase at least 30%. Insiders are collectively making a valuation call that their stocks have become too expensive compared to earnings expectations as the second quarter comes to an end, according to Ben Silverman, director of research at InsiderScore.com.

“Certainly within the insider community there’s some questioning of whether evaluations have peaked and whether this bull run is going to come to an end,” Silverman said.

Stocks experienced broad-based selling on Monday as the Dow Jones Industrial Average was recently down 169 points at 8371, adding to last week’s 3% drop.

With less than two weeks left in the quarter, Silverman said insider activity should start slowing down as companies generally close trading windows approximately a week before the quarter ends.

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This article is even more interesting. You can actually beat Warren Buffett at his own game. How? Well, some of his stock picks are now much much cheaper than at the time when Buffett bought them. He is still holding onto them, indicating that he still likes them. His views echoed his belief in his picks. He does not seem to be cutting any of his positions anytime soon. You can buy Conoco Phillips at HALF the price Buffett paid for.


You can buy Johnson & Johnson at $55 or 12% lower than Buffett's entry price of $65. How about US Bancorp, which Buffett paid $31, you can buy today and boast over lunch that you got in some 45% cheaper. ... And get this, Buffett is still adding to the positions mentioned above even as we speak... that means they are still good.


Of course I jest, Buffett is never a market timer, he could not care less whether he bought at the low or near the lows. All he is concerned is that he bought at value, and he knows that it will be worth a lot more sometime into the future.


Buffett_DV_20090624081253.jpgBloomberg

Can you beat Warren Buffett at his own game? Despite the recent equities rally, some of Buffett’s favorite issues look pretty affordable at the moment:

Mr. Buffett liked oil giant ConocoPhillips (COP) enough to invest $7 billion in the stock through the end of last year, at an average price of $82.55, according to the Berkshire Hathaway annual report. Anyone buying today can get it for about $41.

Mr. Buffett has conceded an “unforced error” in buying this oil stock when oil prices were booming. But that doesn’t mean he has given up on it. In his last comments on the subject a few months ago, he reiterated his belief that demand for energy would remain strong. At current prices ConocoPhillips is about 13 times this year’s forecast earnings, but analysts predict that will drop to a cheap 7 times in 2010. That’s because they believe oil and gas prices will rebound.

He bought Johnson & Johnson at about $62 a share: It’s now about $55, or 12 times likely earnings, yielding 3.5%. He had also invested about $4.3 billion in food company Kraft, at around $33 a share. It’s now around $25, 13 times likely earnings and boosting a hefty 4.7% yield. He had also invested $2.3 billion in US Bancorp at an average price of about $31. Today’s it’s $17. (Mr. Buffett has added to his positions in both Johnson & Johnson and U.S. Bancorp since.)


p/s photos: Kama



Comments

KoSong Cafe said…
Among local retail players, there are those who would try to get information on what their friends bought. For lack of ideas, the easiest is to buy what others have bought at higher prices, feeling good about it for starters. I have come across friends getting upset over this habitual practice of another!

It is similar to students' kiasuism where a selfish student would keep to himself what he knows and learn from others what he doesn't, thereby gaining an advantage in the exams.

Fund managers' portfolio and purchase prices are essentially open to those interested, though not at the time of purchase, so it is not a simple follow the leader, is it? With hindsight, everybody has 20/20 vision!
solomon said…
Our filing of buying and selling of major shareholders or directors were allowed up to 14 days.

By the time of filing, shareholder could be selling and retailers tempted into the buying sprees. If you meet the correct timing, maybe you could earn some supper money or else could end up nagging by the wife.

Warren's value investing is foresight based. Just like a double storey house in Sri Hartamas it may worth a million to you but to me only maybe half of it. The keyword is the entry level like Dali said the last few days. Are you comfortable with and don't follow the crowds.
ronnie said…
Dear Dali,

May I have your view on the viability of AirAsia's business model ? AirAsia currently owes Malaysia Airports RM65mill.

According to Maybank research, AirAsia wants Malaysia Airports to reduce passenger service charges from RM25 to RM10. International PSCs at the LCCT are already 50% heaper than those at KLIA, which are in turn 20% below those charged at neighbouring airports including Bangkok and Jakarta.

AirAsia claims that LCCT charges are excessive mirrors claims it made last year, although AirAsia did not pay its full dues in the end although Malaysia Airports collected its full dues - as how AirAsia and Malaysia Airports' audited accounts show.

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