Toll Founders Rang Register's High Notes

From late 2004 to 2005, they cashed out at the stock's highs, to the tune of $470 million.
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Everybody knows that Robert Toll and his brother Bruce, of the legendary homebuilder

Toll Brothers

(TOL) - Get Report

, are experts at building luxury homes.What we didn't know, until recently, is that they also are experts at selling shares.

Big time.

Back at the peak of the real estate market, when real estate agents and Wall Street shills were claiming the good times would just keep going, the Tolls took one look at the future ... and started shoveling shares out the door as fast as they could swing a spade.

In total, they sold nearly $470 million worth of stock in their company between November 2004 and September 2005, filings with the

Securities and Exchange Commission


Nice timing -- for them.

The people who bought those shares aren't looking so good. The shares began to collapse almost immediately afterward, as the housing market turned tail. At last week's price of just under $30 a share, these outside investors are sitting on losses of $153 million. In other words, they have already lost 34 cents of every dollar they invested. Thirty-four cents.

The details? Robert Toll, the company chairman and chief executive, sold shares between February and July 2005 for a total of $244 million, at an average price -- accounting for a subsequent stock split -- of just under $43. Vice Chairman Bruce cashed out $222 million around the same time, at an average of just under $42.

It's good to see those investors bear no ill will. On the contrary, they reached into their wallets last year to help pay Robert Toll a $17.5 million bonus. This is why I love America.

The Toll brothers may have had many reasons for their stock sales. Both retain big stakes in their company, even if these are not as big as they once were. A company spokeswoman told me at the time that the brothers, who are in their 60s, were "rebalancing" their portfolios.

Indeed. So, it seems, were the people who bought the shares. Downward. They just didn't know it at the time.

What makes this especially interesting is that Bruce Toll has begun selling stock again. The brothers suspended their sales in the autumn of 2005 as the stock collapsed. They stayed off the phone with their brokers through the summer of last year.

Then the sector began to rally on hopes -- ardently fanned on Wall Street -- that the housing market had "bottomed out."

Since September, as the shares have risen, Bruce has cashed out another $47 million. That includes nearly $16 million just before Christmas and almost $7 million at the end of January.

The important backstory to this is that Toll Brothers isn't some second-rate outfit. It's an outstanding company, the market leader in building million-dollar homes, and it has been a tremendous success for decades.

So when the brothers behind it start dumping stock, it tells you something. Who knows the housing market better than Bruce and Robert Toll?

Last week, as the National Association of Realtors was putting the best face on the continuing housing slump, one number in its latest survey stuck out like a Beverly Hills villa in the Bronx: The number of new homes that are sitting on the market unsold has jumped 47% from a year ago.

Housing is a slow-moving consumer good. It takes years to buy the land, get the permits, build the home and make the sale. So following average sales-price data may not tell you what is coming next.

In the last Toll Brothers fiscal year, revenue rose 6% and completions fell by 2%, which gave plenty of ammunition for the sunshine crowd on Wall Street. But contracts on the books at the Oct. 31 year end plunged 41% -- and the backlog of new orders was down 27%. Should these be comparable?

The best forward-looking indicator of all may well be insider stock sales by the people who know the housing industry best.

In keeping with TSC's editorial policy, Brett Arends doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Arends takes a critical look inside mutual funds and the personal finance industry in a twice-weekly column that ranges from investment advice for the general reader to the industry's latest scoop. Prior to joining in 2006, he worked for more than two years at the Boston Herald, where he revived the paper's well-known 'On State Street' finance column and was part of a team that won two SABEW awards in 2005. He had previously written for the Daily Telegraph and Daily Mail newspapers in London, the magazine Private Eye, and for Global Agenda, the official magazine of the World Economic Summit in Davos, Switzerland. Arends has also written a book on sports 'futures' betting.