If you don’t read on a daily basis, you’re handicapping your investment efforts big-time. I not only plow through stacks of SEC filings, but also other articles related to the markets and stocks. That’s because I’m not the only person who thinks about investing — financial media is full of information and ideas that can be of enormous benefit for finding safe, cheap stocks — and I don’t hesitate to use those ideas.
For instance, I recently found an article that discussed Professor Nejat Seyhun and his insider indicator. It seems that when Seyhun focuses on just officer and directors and excludes large shareholders, that aggregate insider buying and selling can be very predictive of market movements.
This article, written by well-known market observer Mark Hulbert, also pointed out that the officers and directors buy/sell index was currently at levels similar to those reached in 2007 just before everything went south. It’s also at levels similar to those just before our little market hiccup in 2011. Officers and directors of many companies are selling stocks at a high rate, and Hulbert says that’s a red flag.
Since I’m more of a stock picker than a market timer, it makes sense to me to combine this heightened level of caution with the aforementioned research that shows stocks with clusters of insider selling are likely to decline in value in the coming year.
The following is a list of stocks to sell or avoid, as they could be in for a negative double whammy.