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Insiders Unfazed by Terrorist Attacks

Preliminary numbers show corporate insiders began buying in September.

If you follow such things, you were likely dismayed by rumors that corporateexecutives flooded the

Securities and Exchange Commission

with Form 144 registrations to sell stock in the wake of the Sept. 11 attacks. Not only does this portray capitalism in the meanest light, it implies a lack of confidence by the individuals responsible for getting our fragile economy back on its feet.

The good news is that, like so many tales spawned by terror, this oneseems a bit tall for its own good.

Given the unprecedented break in trading and the inevitable pent-up demand that resulted, historical comparisons are difficult. But it doesn't seem unreasonable to approach the month's data in aggregate, however. And for the month, insiders and other early investors registered to sell less than $3 billion worth of stock, the lowest total since December 1998.

Of this total, $1.2 billion was registered in the six trading daysprior to Sept. 11, while the remaining $1.6 billion was registeredduring the 10 trading days that followed. And keep in mind, not only doessome portion of this latter value represent pent-up demand, but likewiseshares sold under programs, including Rule 10b5-1 plans established underthe SEC's Fair Disclosure Regulation (Reg FD).

So, unlike an unfortunate minority itching to flee Capitol Hill forthe heartland and mountains, the nation's executives apparently haven'tgiven up. In fact, preliminary numbers show corporate insiders at long last started buying in September. So much so, in fact, that our preliminary ratio of sellers to buyers dipped below one-to-one for the first time since December 1999.

To be sure, the feds provided some of the juice. Much was made ofthe SEC's decision to temporarily suspend restrictions on the timing andmagnitude of corporate buybacks when trading resumed following the attacks.Less widely known is that the same emergency order suspended the short-swingprofit rule and thus allowed insiders who had sold within the past six months to repurchase at lower prices and hang on to their short-swing "profits."

Another aspect to these numbers is worth considering. One knock against following corporate insiders is that larger-cap names are underrepresented. And to some extent this is true; insiders are, indeed, more likely to accumulate shares of small- and medium-cap stocks, and on average, the rewards of following their lead tend to be higher for these types of issues.

In September, however, insiders bought not only across sectors but breached the size barrier as well.

Hartford Financial Services

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Cypress Semiconductor

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and even giant

United Technologies

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were all under accumulation in September. Believe me, these are big fish by insider-buy standards.

Clearly, September was no ordinary month. Only October can tell us whether what insiders showed us was capitalism at its purest or patriotism at its finest, or both. My gut is that we finally got the whoosh that brought the bargain hunters out of hiding. Either way, it makes me proud. And a little less nervous.

A senior analyst at Thomson Financial/First Call and editor of Insiders' Chronicle, Paul Elliott monitors changes in insider and beneficial ownership primarily for institutional clients. At time of publication, Elliott held no positions in any stocks mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Elliott appreciates your feedback and invites you to send it to