“While insiders are willing to use corporate cash to try to support the value of their stock-based compensation, they don’t seem to think their stocks are attractively priced.“
-Charles Biderman, Trimtabs
Over the years, I have been critical of Trimtab’s Charles Biderman (See this, this, this and this). I suspect much of the visibility his model was dependent upon to track investor money flows had disappeared into dark pools or derivatives. Thus, the ability to peer into mutual funds asset buying and forecast equity movements was compromised.
My critiques of Biderman’s research has been he has lacked the data to support his views, which were too bullish heading into the 2007 peak, too bearish during the 103% rally. Examples include a late 2007 comment that “Fear and ignorance seem to be gripping retail investors” (Doh!) or the April 2008 claim that the economy was emerging from the recession (Um, not exactly).
However, in a recent research report, TrimTabs seems to have some ugly Insider Buying data that supports their bearish views.
Biderman observes that while US firms spent $124 billion in stock buybacks in Q2, insiders bought less than $2 billion of company stock with their own money. That 70:1 ratio is a sharp contrast between “what insiders are doing with their own money and what they’re doing with the money of the companies they manage.”
At the 30 firms with the biggest buybacks in 2011, over $168 billion was spent purchasing shares, while there was zero insider buying at 24 of these firms amounting to less than $10 million. Cherry picking aside, that is still a ratio of 16,800:1.
I have not crunched the numbers to see exactly how probative extreme Insider Buying (or the lack thereof) is to future market performance. But it is an intriguing data point that may be worth noting.
The real story behind the market ‘boom’
Marketwatch, June 29, 2011