Deep Value and Insider Buying

[Myth465]

Thanks for the idea. I like the numbers here but was just curious why the management has not bought any meaningful amount of shares on the open market. Insider buying is an absolute must before I pull the trigger.

 

And also you said the company is trading below its intrinsic value. Can you share a little about this?

 

This comment made me think and I am considering updating my process to include it. When I look at where I have been screwed on Deep Value ideas, I have noticed that there was insider selling or no new buying.

 

What do you guys think. I think with regard to regular deals insider buying / ownership isnt needed, but probably is required on deep value.

 

Thanks for the comment Baoxiaodao.

[manualofideas]

Myth, I used to view insider buying as paramount in a deep value or distressed situation, but I have learned that sometimes the insiders get scared too and simply can't pull the trigger.  To give you an example, I almost bought Select Comfort (SCSS) in March 2009 at $0.20 per share.  Finally, I talked myself out of it because I thought, "If this is so cheap, why aren't insiders buying?"  Less than a year later, the stock was at $10, so I would have turned $100,000 into $5 million.  Expensive lesson that says don't be too dogmatic.  Insider buying is a plus, but sometimes even the insiders don't have the guts to do what's right.

[bookie71]

Sometimes insiders have kids in college, parents in nursing homes, and other uses of the money.

[Myth465]

Those where my typical prior thoughts as well. I felt an Insiders livelihood is tied to the company and its not in his best interest to move all in unless the stars and moon lines up.

 

Damn you guys.

 

Yall are basically saying no hard and fast rules. You have to think.

[netnet]

If there is insider selling from multiple players, I don't buy.  Insider buying is always nice, but is not an infallible signal--Ken Lay's purchases at Enron come to mind.  If the company checks out on other dimensions, then insider buys is a nice confirmation.

[txlaw]

Nothing wrong with having a hard and fast rule like the one Baoxiaodao has if that prevents you from making mistakes or somehow makes you analyze things more thoroughly. 

 

You may miss out some opportunities, but over the long run, you could be better off, especially in situations where bankruptcy or fraud is a real possibility.