Customer Service 1 (888) 261-2693
Advanced Search

Why I Follow Insiders

By Stansberry Research Interview Series
Monday, January 29, 2007

Since we started publishing Growth Stock Wire in July, I’ve made a fair number of predictions. The major ones were:
 
1. Going long on gambling stocks (July 19)
2. Going long on homebuilders (August 9)
3. The market will enter a serious correction (September 11)
4. Going long on retail stocks (October 9)
 
All of these predictions were based on insider transactions. I never simply buy because insiders are buying. But I do believe that if insiders are loading up in a particular sector, there is value that most people haven’t seen yet.
 
So how’d we do?
 
Since August 9, homebuilder stocks have soared. The three we focused on – D.R. Horton, Centex and Pulte Homes – have all risen more than 10%. D.R. Horton is up more than 30%.
 
Gambling stocks have exploded. International Game Technology is up almost 50% in the last six months. Wynn Resorts has nearly doubled. Boyd Gaming is the one gambling play we’ve covered that hasn’t done much of anything.
 
We’re still waiting on a stock market correction. In spite of every major indicator I look at going bearish, the stock market has continued to rally in the last six months. We took a hit last Thursday and Friday. I personally think earnings announcements will kick off a sharp correction, akin to that of May 2006, sometime in the next couple of weeks.
 
And finally, retail stocks had a blockbuster 3Q06 and 4Q06. Nordstrom is up 60%, Federated Department Stores rose almost 20%, and American Eagle Outfitters is up 40%. Even Wal-Mart, the largest and most hated retailer on the planet, is up almost 10%.
 
A lot of times, people ask me why I follow corporate insider transactions so closely. My answer is, because insiders are almost always right.
 
Insiders started buying shares hand over fist before the Bull Market of 1974, they dumped their holdings prior to the Crash of 1987, and they sold the farm right before the Tech Bubble burst.
 
Today, they’re selling again at a record pace.
 
Since November 2006, insider bears have taken over. That month alone, 19,976 insiders sold more than $4.5 billion worth of company stock. With insiders buying a measly $33 million in the same period, this established the insider sales/purchases ratio at 132/1: Six times the historical average.
 
I never buy or sell a stock based purely on insider transactions; I always make sure the investment is compelling for other reasons. However, I’ve found that very, very rarely has it paid to bet against the insiders.
 
And right now they’re moving their money out of the market.
 
Good trading,
 
Graham




Market Notes
Oil and gas pipelines continue to lead the energy sector… DCP Midstream and Sunoco  Logistics at new 52-week highs.
 
High-end grocer Whole Foods at new low... down 43% from 2006 high.
 
Earnings today: Verizon, USG, Schering-Plough.
 
In The News: Wall Street may not regain business.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%

Recent Articles