Insider Information


By Stephanie Berenbaum

Stocks Are Down & CEOs Are Buying

What a week it’s been!  All the ups and downs of the stock market actually make my frenzied Manhattan dating days seem serene and even-keeled.  But, in true Fab & Fru fashion, I wanted to find a bright spot in all this chaos – a little something to help calm my own nerves.

If you’re anything like me, you love a little insider scoop.  I mean, who doesn’t want to know what those in the know are up to, right?  Now, the insiders I’m talking about aren’t Marc and J. Lo’s best friends or anything like that.  This week I was most interested in what corporate insiders were doing – you know, the high ranking executives and board members of companies.

Insider Shopping Spree

Amid the major stock slides this week, some interesting information emerged – there was a spike in insider buying.  But that’s confusing, right – don’t people go to jail for this kind of stuff?  What does “insider trading” actually mean and why is it a potentially promising sign?

According to the SEC (Securities and Exchange Commission), “Insider trading is a term that most investors have heard and usually associate with illegal conduct.  But the term actually includes both legal and illegal conduct.” Interesting. So, first let’s look at the legal kind…

Bargain Hunting Big Shots

Corporate insiders (like CEOs, for example) need to register with the SEC when they buy or sell stock, which is why it is easy to track what they are doing.  And, like any of us, when they see something – like a stock -  that is undervalued, they want to buy it.  Well, this week there was a big uptick with insider buyers purchasing their own company’s stock – which leads one to believe that corporate executives think their low stock prices are overdone and are good values at current levels.

Cocktail Party 411

Now, obviously just because a corporate insider is buying stock does not guarantee it will go up.  But I do think it is an interesting trend to be aware of.  Believe me, you’ll thank me when you’re at a cocktail party this weekend and that gorgeous CEO you’ve been eying mentions that he’s been scooping up his company’s stock like a kid in an ice cream shop.  Now you’ll know exactly what hot stuff is talking about, and be able to add your own two cents worth to the conversation….

Illegal Insider Trading – That’s A No-No

So, now that we’ve addressed the good kind of insider trading, we want to make sure you don’t confuse it with the bad – and illegal – kind! I bring this up because a friend of mine, when she heard I was writing about insider buying, thought it was illegal. No – they are two very different things.

Just to clarify – illegal insider trading is criminal activity.  It is when corporate insiders have material, non-public info that they trade on.  For example, let’s say that I am a CEO, and I just found out that my company’s number one skin care product actually causes a horrible disease – and then I start selling stock like crazy, before the public has access to this info.  That’s totally ILLEGAL, and I would get in serious trouble.

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