Mark Hulbert: Surprise, Surprise — Insider Selling Stats Actually Aren’t Bearish

Monday, 18 Mar 2013 01:24 PM

By Dan Weil

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The financial world has been full of chatter in recent weeks that insider stock sales are soaring, with bearish implications for the stock market.

But Mark Hulbert, editor of the Hulbert Financial Digest, says the insider selling data aren’t being interpreted properly. When they are, there’s no justification for bearishness, he writes in The Wall Street Journal.

As for the apparently bad news, the ratio of insider selling to buying, rose to 10-1 by late February, the highest since Vickers Weekly Insider Report began recording the numbers in 1998.

Editor's Note:
 
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

But there’s a rub to that figure. Note that insiders include officers, directors and the company’s largest shareholders. And the latter group will have the least inside information about the company.

“It turns out that the large number of insider sales in recent weeks was the result of just a few insiders selling a huge number of shares,” Hulbert writes.

And the bulk of those big sales came from the large shareholders.

“According to [University of Michigan expert Nejat] Seyhun, close to 90 percent of the shares that insiders collectively sold in February were the result of these mega-sales from a few very large shareholders,” Hulbert notes.

“After eliminating these sales from the insider sell-to-buy ratio, Mr. Seyhun found that current insider behavior is right in line with its average level of the past 10 years, with implications for the overall market that are no worse than neutral,” he adds.

“At least for now, bulls can rest assured that company insiders — properly interpreted — aren't betting heavily against them.”

To be sure, many experts see other reasons for a stock market correction. To some, the worry is now Cyprus’ financial crisis.

“We’ve had a wonderful market and somewhat carefree attitude,” Richard Sichel, chief investment officer at Philadelphia Trust, tells Bloomberg.

“Now here’s sort of a dose of reality, and although it’s such a small country, what they’re doing sort of sends shivers through investors and other countries.”

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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