This Short Hedge Can Work Two Ways

I'm still net long and therefore I'm rooting for the indices to continue moving higher. But it's impossible not to notice the potential for another market disruption. Potential spoilers include negative moves in inflation, interest rates and currencies, and unknowns relating to expected federal legislation of important industries, among other factors.

Any one potential negative may be a low-odds event, but there are too many of them for me to be blithely bullish. As such, I've included several short positions to hedge my long exposure. One example is Alexandria Real Estate Equities (ARE - commentary - Trade Now).

Alexandria Real Estate Equities is a real estate investment trust (REIT) specializing in owning and managing properties used by tenants in the life sciences field. This industry niche has been considered relatively more attractive than those of REITs relying on the likes of financial sector or mall-based retail clients to fill their buildings. But this perception certainly hasn't protected shareholders or Alexandria from the immense pain caused by the financial crisis and subsequent recession -- Alexandria's stock is down 66% from highs hit last fall. ARE is also off nearly 45% year to date.

Unremarkably, insiders were steady sellers of their Alexandria shares for most of last year when they were hitting triple-digit highs, but it is both notable and negative that the wholesale collapse of ARE's price last October did not change the selling habits of its executives.

To the contrary, three high-ranking insiders actually accelerated their stock sales into the fall. The trio sold $5.3 million worth of the stock at an average price of $43.90 a share in November and December of last year -- that after this same group (plus another director) cashed out "only" $1.9 million in sales in August when ARE was trading above $105 a share.

In fact, the total cash raised via insider stock sales of ARE in the first 10 months of 2008 was $5.8 million -- not much more than the $5.3 million raised in the final two months after the shares collapsed.

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At the time of publication, Moreland was short ARE, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.