Jon D. Markman

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Insiders Spent 2004 on the Sell Side

Jon Markman

Editor's Note: This is a bonus story from Jon Markman, whose commentary usually appears only on RealMoney. This column originally ran on RealMoney on Jan. 18. We're offering it today to TheStreet.com readers. To read Markman's commentary regularly, please click here for information about a free trial to RealMoney.

Even if 2004 wasn't the best year for your portfolio, it sure was for a lot of U.S. corporate executives and insiders. According to Thomson Financial data, last year was the second most lucrative on record for insiders as they sold $41 billion worth of their shares to the public, a figure that was up 40% from 2003.

In contrast, insiders were buyers of only $1.45 billion worth of stock. That was the second lowest annual level since 1996, according to Thomson.

If the differential between selling and buying sounds extreme, it is. The ratio between dollars of stock sold and dollars of stock bought by insiders was 28-to-1, the most bearish Thomson has recorded since the company started tracking the figures in 1990.

Insiders were particularly active in their sales in the final three months of last year, dumping $12.8 billion on the public while only buying $342 million worth of stock. Thomson says the dollar sell-buy ratio, its top augur of executive sentiment, was a whopping 37-to-1 in the quarter.

Among the biggest sellers were the top brass at Sirius Satellite Radio(SIRI Quote), who sold $31.2 million worth of shares to investors in December alone. The stock is off 22% since Chairman Joe Clayton sold $15.8 million on Dec. 22. Among the executives at other hot-stock companies, David H. Brooks of armor maker DHB Industries (DHB Quote) sent $106 million worth of his shares to the open market on Dec. 29. The stock is off about 20% since that sale.

Technology executives and directors were among the least likely to buy their own companies' shares in December, adding only $3.8 million worth to their holdings, significantly trailing their $20 million buys in November. Meanwhile, insiders in the finance industry found their shares the most compelling, picking up $34 million last month. The few big companies at which large buys were made in December included Barnes & Noble (BKS Quote), where Leonard Riggio bought $737,194 in shares, while executives at Novell (NOVL Quote), Staples (SPLS Quote) and Kinder Morgan (KMR Quote) were also fairly active.

One of the more interesting developments has been the failure of a big insider purchase made in November by executives at Harvest Natural Resources (HNR Quote).

James Edmiston, Peter Hill and Kerry Brittain combined to buy almost $400,000 worth of Harvest shares in November at around $15, but it seems they were overly optimistic on their prospects to continue to drill in Venezuela. Today the company announced it had failed to obtain necessary permits from the country's Socialist regime, and the stock plunged 29% to $12.00.

For the start of 2005, William Lyon's $43 million purchase on Jan. 7 of the shares of his homebuilding company, William Lyons Co. (WLS Quote), has been the biggest buy.

Insiders generally know their companies better than the public, so the strong 2004 trend toward heavy sales is one more troubling hurdle that the bulls will need to surmount to get the new market off the mat.