It’s not often and I’m not even sure it’s advisable to buy a  wunderkind stock when it has a big sell off but we have to give the CEO of Palo Alto Networks credit for going big.  But then that’s how they roll in Silicon Valley.  Chairman of the Board, Aroram, bought $4.5 million of his stock when it stumbled? Is is a good buy, reasonable valuation?  Not hardly but that’s not how the game is played. That’s our pick of the week and former Jim Cramer favorite.

The stock that worked though, is Expedia. We didn’t put enough credence in the $2 million purchases during the previous week. Expedia rocketed 10% on news that Barry Diller might buy more and that he was putting new management in. It looks like Director Gieselman is on board with the changes.

CBL eliminated their 20% plus dividend, the stock crashed, has been crashing and Michael Ashner bought $1 million worth. This looks opportunistic and we are going to do some more research in this one. We already have a large underwater position in Macerich which has lots of insider buying.

Cigna director Foss bought nearly $2 million of this health insurer. We’ve made good money on this name and if it hadn’t run up so much recently, we’d be all over it again.

KLXE Energy Services is a trophy in the garage.  If energy ever comes back, this company should roar. For now it’s a dead cat bounce. We have some unique thoughts that if the Dems gain control and remove Government lands from fracking, you could see a major revival in the energy sector but that’s a way’s off if ever.

Donnelley Financial is a cheap conglomeration of financial products and services. It’s hard to see the catalysts here. Perhaps this is a name that would attract private equity. For now we are on the sidelines.

Great Lakes Dredge and Dock had some buying.  This is a deeply cyclical industry and I’d rather own airlines if I’m going to be stuck with cyclical anxiety.

Insiders sell stock for many reasons, but they generally buy for just one – to make money. THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  After all, who knows a business better than the people running it?  You’ve always heard the best information is inside information.  This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal.  Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to the Washington Service as they provide a way to manage and make sense of the vast realms of data.

As a rule, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing. The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor.  I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.

Of course insiders can also be wrong about their Company’s prospects. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than  you or I. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!  Needless to say, past good fortune is no guarantee of future success.  We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.

This blog is solely for educational purposes and the author’s own amusement.  Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  To learn more about our strategy, visit our website. If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar.

Prosperous Trading,

Harvey Sax