Insiders Disagree With the Shorts

MARKET SHARE Bob Starzynski

Insiders Disagree With the Shorts

Looking over some insider trading reports last week, I ran across a document showing that Bill Gates sold less than 1 percent of his stake in Microsoft for a mere $399 million. That really puts his wealth into perspective.

But seeing that report set off a light bulb - it's a good time to look at what insiders are thinking about their own markets. After all, if Joe CEO has no confidence in his company and is selling off his holdings, why should you get stuck holding a hot potato?

After some nosing around, here is the bottom line: Since the last time this column looked at the sentiments of insiders in mid-March, most technology sectors have come much more into favor.

Of course, the technology industry as a whole still ranks at the low end of the spectrum, with inside sellers far outnumbering inside buyers.

According to information supplied by Disclosure Inc., the Bethesda, Md., cullers of countless Securities and Exchange Commission filings, the technology industry closed out May with a score of -15 on Disclosure's proprietary scale of -99 to 99. Disclosure sets the ratings on its scale based on the number of buyers and sellers in an industry, and it factors in such things as how many shares are transacted and how senior the executive is who is making the trade.

Comparatively, such industries as utilities and finance filled in the top end of the spectrum at the end of May, while media and energy joined technology at the bottom.

If you look within the technology industry, you see that not everyone is selling. Computer hardware and software company executives really bring down the average, with Disclosure ratings of -55 and -53, respectively.

But telecommunications, electronics and semiconductor companies have come much more into favor in the past two months.

In March, semiconductors logged -70 on Disclosures scale. Last week, it was up to 10. That means semiconductor executives have gone from heavy unloading of shares to accumulation of shares. They have a much stronger faith in their companies' stocks.

The same holds true for telecommunications companies, which went from -34 to 48 in the same period. And electronics companies went from -19 to 17.

Remember that insider trading is only one indicator of how companies will fare on the open market. Just last issue, we looked at how short sellers are betting more and more heavily against tech companies, especially the telcos. These are two indicators that are carefully monitored by most Wall Street specialists, but they are sending mixed signals.

Because there is no consensus on how tech companies will perform in the second half of this year, you must decide who to believe. Warren Buffett - long regarded as one of Wall Street's top players - said in his Berkshire Hathaway annual report to shareholders in February that he believes the market is not overvalued.

"Though we don't attempt to predict the movements of the stock market, we do try ... to value it," Buffett said, adding that as long as interest rates don't rise and corporate returns on equity don't fall, the market is fine.

"If they stay there ... there is no reason to think of stocks as generally overvalued," he said.

Those statements alone accounted for much of the strengthened opinions of the public markets in the past two months. In this case, Buffett's pen appears mightier than Gates' wallet.

For questions, comments and suggestions, contact Bob Starzynski via e-mail at

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