Record Number of Insiders Buying Their Firms’ Stock
Record numbers of corporate executives and directors have bought stock in their own companies since the market crashed Oct. 19, indicating to analysts that these insiders are confident in the future of their businesses.
During the first 30 days after Black Monday, corporate buyers outnumbered sellers by a margin of more than 7 to 1. The trend is the opposite of the normal buying and selling pattern of corporate officers and directors, known as insiders. Usually, insider sellers outnumber buyers by a margin of 2.5 to 1.
“I just can’t believe what’s going on,” said Edwin A. Buck, editor of Vickers Weekly Insider Reporter in Brookside, N.J. “If you had bet me that there would be even four insiders buying for every one selling, I would have said you were out of your cotton-picking mind.”
Buck said the trend marks the most sustained level of insider buying over selling since he began analyzing insider transactions in 1971.
“Historically, the insiders have never been wrong on the buy side,” Buck said, adding that the buying wave indicates that the corporate officers believe that their stock has bottomed out.
The insider transactions, which must be reported monthly to the Securities and Exchange Commission, are legal so long as they are not based on information that is unavailable to the general public.
Some of the insiders bought about the same time that their companies announced their own programs to buy back stock, a tactic that frequently pushes up the stock price. But there have been no accusations of wrongdoing.
Paul Simmonds, head of research for the Institute for Econometric Research in Fort Lauderdale, Fla., found the same trend as Buck in monitoring insider transactions, which become public information upon being reported to the SEC.
“There has been a spectacular amount of insider buying since the crash,” Simmonds said. “The flurry was strongest in the 10 days immediately after the crash, when stock prices were very low, but the trend has continued since then.”
Data compiled by Simmonds for the institute’s weekly report, the Insiders, found that in the 30 days since the crash, there were 421 insider buyers, compared to 73 sellers, on the New York Stock Exchange; 176 buyers, compared to 10 sellers, on the American Stock Exchange, and 643 buyers, compared to 83 sellers, in over-the-counter trading.
Overall, the figures show buyers outnumbering sellers by a margin of better than 7 to 1 in the 30-day period that ended Nov. 20.
When insiders buy, it is generally viewed as a long-term endorsement of the company’s prospects since federal securities law requires them to hold stock for a minimum of six months before selling or returning any profit to their company.
“These insiders are not traders,” said Buck. “They are looking for the long term. The crash came and they looked at the price of their company’s stock and said, ‘That’s good enough value for me.’ ”
Simmonds said a purchase of 100 shares may simply represent allegiance to the company, while insiders who buy more generally are interested in making a profit and feel the company’s stock has reached its nadir.
One substantial buyer has been Kenneth J. Thygerson, president of Imperial Corp. of America, parent company of Imperial Savings Assn. of California in San Diego, according to data compiled for The Times by the Institute for Econometric Research.
Between Oct. 7 and Oct. 21, Thygerson bought 2,500 shares at prices between $9.125 and $14.25, bringing his total shares in the company to 20,138.
“I’m motivated by the same thing that motivates any other individual investor: buying something that has good value and should appreciate,” said Thygerson, who added that he continued his buying in November. “It is also an indication of some level of optimism about the future of the company. Frankly, I’d be concerned if I had stock in a company and found out that management was selling in this market.”
Thygerson’s optimism was reflected by Imperial’s board, which announced Nov. 2 that the company would buy back up to 400,000 shares of its common stock at market prices. Since the announcement, Thygerson said the company has repurchased about 40,000 shares.
When asked about any potential conflict between his own purchases and a board decision that could affect the price of the stock, Thygerson said he doubted that the size of the board’s repurchase program would have any significant effect on the stock price. Indeed, the price has dropped slightly since the board’s announcement.
Active S&L; Stock
Raymond J. Perry, vice president of Carl Karcher Enterprises, the Anaheim-based operator of the Carl’s Jr. hamburger chain, purchased 1,000 shares of Karcher stock at $13.375 a share on Oct. 20. The following day, the company said its board had approved a program to repurchase 400,000 shares for up to $5.6 million. A spokesman said Perry did not want to discuss his purchase. (Karcher stock closed Tuesday at $11.875 a share in over-the-counter trading.)
Two directors of Far West Financial Corp., the Newport Beach parent of Far West Savings & Loan, bought stock in the company after the crash, according to data from the institute.
On Oct. 19 and Oct. 20, Monty Hall, former host of the television show “Let’s Make a Deal” and a Far West director, bought 9,000 shares at prices varying from $7.625 to $10.50 and brought his total holdings to 12,800 shares.
Another director, Paine Webber stockbroker Dwight C. Baum, bought 2,000 shares indirectly on Oct. 20 for $7.875 a share, bringing his indirect holdings in the company to 10,000 shares.
Far West also apparently thinks its stock is a good buy. On Oct. 28, the company said its board had authorized the repurchase of up to 1 million shares of common stock.
According to the institute’s data, the biggest insider purchases among companies based in Southern California were made by David H. Murdock, the chairman and chief executive of Castle & Cooke, best known as the producer of fruits under the Dole label.
Between Oct. 19-23, Murdock bought a total of 630,000 shares of Castle & Cooke at prices ranging from $13.50 to $19.75, according to the institute data. The purchases brought his total holdings to 9,327,172 shares.
Murdock did not return telephone calls to the company’s Los Angeles headquarters, but his investment appears to have had mixed results to date. Castle & Cooke stock has hovered around $16 in recent trading sessions, the mid-range for Murdock’s purchases.