Michael Dell's Big Buy Isn't Enough

One hundred million dollars is a lot of money. But it's not enough to buy a positive insider profile, according to the way I keep score.

Michael Dell's $99,711,598 purchase of 4,503,600 shares of Dell (DELL - commentary - Cramer's Take) between June 27 and July 1 was like shooting a flare into a pitch-black night. It was impossible to miss, and it represented one of the largest open-market buys by an individual in years. That sort of commitment of capital has got to put Dell's stock at the top of my list of things to buy, right? After all, I'm an insider guy.

If only it were that easy to use insider data in the investment process. As it turned out, Dell didn't even make the weekly New Finds table in my InsiderInsights newsletter, which represents stocks I'm investigating for possible inclusion on my Recommended List.

Here's why: Despite the immense dollar value of Mr. Dell's purchase, it only boosted his holdings by a mere 2.1%. So the transaction was actually quite small by this also important metric.

The larger problem with this firm's insider profile, however, is that Mr. Dell has been the only buyer among a stream of sellers. Since the beginning of 2008, nine other insiders have seen fit to sell Dell's shares, even though the stock is off more than 20% in the past year and nearly 50% from highs hit in early 2005. Insider selling into weakness has historically been a troubling sign that indicates a lack of faith that the company's shares are likely to recover soon.

And that's not the only mitigating factor to Mr. Dell's enormous purchase. Of the nine sellers, four of them sold over 10% of their total holdings. One director, Michael Meyers, sold half his position with his 284,000-share sale back in January.

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At the time of publication, Moreland had no positions in stocks mentioned, although holdings can change at any time.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. 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.