INSIDE STORY
INSIDE STORY
Insiders at Microsoft, Gap, and Google dumped thousands of company shares in late April. Should investors follow their lead? Trading based on what insiders do is a poor strategy in the best of times, says James Stack, president of InvesTech Research, and even less advisable during highly volatile periods. Insiders were buying through the last half of the 1973-74 bear market and selling in 1982, just as the Dow Jones industrial average broke 1000 on its way to 2700. Insiders tend to place trades that are driven by the size of a movement in a stock's price, says Stack. If shares fall 30%, they're likely to buy; if they rise 30% or more, they are likely to sell. Since the trades are not usually based on a change in the company's fundamentals, investors shouldn't read much into the transactions. Says Stack: "Historically speaking, these guys make very poor investors."
Copyright 2009  BusinessWeek
