Real Estate Blog - Are Bank Insiders Telling Us Something? They're Purchasing Stock at a Record Pace

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Are Bank Insiders Telling Us Something? They're Purchasing Stock at a Record Pace

Dollar Origami 4 by Piotr Bizior

Popular Concepts:

Inside Information: If you want to know what's going on in a company ask the people who work there.

Outside the Box Thinking: If you want to make changes, do something differently.

Forrest vs. Trees: Sometimes we're too close to the situation to see "the big picture".

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There you have it... three expressions in a cage match.

We live in a time that's tough to read. Companies that are involved in housing (Banks, Builders, Agents, etc.) have been exceptionally poor at predicting the peculiarities of the market we're currently in. It's as if too many experts bought a bunch of really bad crystal balls off ebay.

If we want to point fingers we have too many culprits and too few digits. But really, how useful is this exercise right now? Most of us are looking for daylight. Trying to find indicators that change is afoot. So... let's take a peak inside the box... in this case let's look at the banking industry.

Here's a good place to start... Linda Shen and Brett Gering of Bloomberg have this report: "Insiders Purchase Own Stock at Fastest Pace in Two Decades." It makes me ask two questions:

What are they saying?
What does this mean?

What are they saying?

From May to July of this year employees of banks, and savings and loans, invested huge sums into their businesses... buying nearly $300 million dollars worth of company stock. When company employees (usually the higher ups) are putting close to a hundred million dollars a month back into their own company's stock funds, well, that's saying something. We haven't seen a re-investment of this magnitude since November of 1986. What happened to cause that? We're not quite sure... it's that we only started measuring such activity at that time.

What does it mean?

There are a few theories:

Some in the industry feel the bottom has been reached.

Some feel the price is right.

Some say it's to show confidence in their industry.

Are they right?

Maybe yes. Maybe no. These purchases occurred before the Fannie/Freddie takeover. Still.. that it is happening is significant. Whether this confidence is an act of prescience ... an indicator of a market on the rise is a question that will be answered. All we have to do is wait and see.

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Chuck Willman is a real estate agent and founder of AZvest ... a group of investment minded individuals who specialize in real estate in and around the Phoenix metro area. 480.292.0600 - www.AZvest.com

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Photo Credit: "Dollar Origami 4" by Piotr Bizior

Posted by Chuck Willman, Arizona Realtor® 480.292.0600 on 09/09/2008 12:41 PM

Comments (8)

Bank Trading in the Real Estate Investing Channel

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Originally posted at: Arizona Real Estate Specialists: Are Bank Insiders Telling Us Something? They're Purchasing Stock at a Record Pace

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8 Comments on Are Bank Insiders Telling Us Something? They're Purchasing Stock at a Record Pace

SEP

2008

Hi Chuck - pretty heady stuff for someone who just focuses on real estate. There's this rainer who profiles like a realtor but speaks like an investment banker that blows the lid off my comprehension radar. I think they all got bad balls off eBay, crystal balls (of course ;-) If you figure it out, let us know - p-l-e-a-s-e!!!

Since I really don't know that much about the Banking industry, I won't be buying stock in any banks any time soon. I prefer to have my investments be in an area that I actually know something. I personally don't have much faith in any bank right now, but what do I know?

SEP

2008

I am just glad we haven't been sucked up by the big black hole [yet] after all the particle collider protons were fired in the European tunnel! Now you are telling me some 'insider' stuff might be going on in the Banking industry??!! Say it isn't so!! My trust fund never materialized so let the banks blast through their own 17-mile European tunnel. Blast me into the future so I'll know the Paul Harvey.

Ok, I might be off here (no comments from the peanut gallery on THAT one) but this is just a little scary to me. To have bank employees, regardless of their level, re-investing in te bank at major levels like this makes me think something hinky is going on. Hinky and scary. Not a good combination!

~Renae

Chuck: as usual you ignited that magic fire...

The comments here are as good as the blog; I'll have to revisit and read any new ones.

I will not make ANY predictions here. I will, however, share with you my fears:

I've been watching it all very intently for the past four years... The WSJ is my prism. I fear that we have already stepped on that global quicksand, from which there is no returning.

Shaw said that "the only thing we learn from history, is that we don't learn from history"....

When in a major crisis, nothing cleans the slate better than a major WAR...

Sorry, but that's my FEAR. To that end, I've already started being PRO-ACTIVE. If we all do what we can to make a difference, our voices will matter.

Stock in the banks? I'll pass. The Titanic wasn't supposed to sink either...

Gail- I tend to think that housing and credit are fraternal twins... what effects one effects the other. So I like to follow it- but I am not the expert. For such answers I like to consult with those who make it their living.

Pam- Sound investment strategy... stick with what you know. So... if people working for banks are buying their stock in the companies that they work for they may have confidence or knowledge to convince them.

Susie- As far as the "insider" activity goes... this is all on the up and up. It's totally legally to deal in your own company's stock as long as you file the right paperwork. Some companies make a big show ... they announce how much of their own stock they're buying as a sort of press buzz builder. The financial analysis of the trades of this period are a reflection of the public information. Now... as far as the "insider" information that others may have about this activity- I can only say this. It's speculation. Sort of like what we're doing here... commenting about what has happened and why it's happening.

Renae- I'm less scared by it. Actually I'm encouraged. Though $300 million sounds like a lot... in comparison to the other stock holders it's a drop in the bucket. Still... they they'd put their own funds into the purchases in such great numbers is... well... odd... and, curious guy that I am... I'd like to know more.

Mirela- I've been watching it as well... our markets are not so different. We are in destination cities. We've also had a big equity run-up. Anyone who was doing due-diligence had to wonder how long the cycle could last. And... when appraisals we're less scrutinized and money became easy... and credit requirements lessened- those who have worked in this industry had to have the occasional moments of pause. Now... we've become more skeptical. Even though we tend to work with investment minded individuals we are ever looking for the safest deals and the highest amount of margin to help guide our clients to safer properties (with regard to risk). I'm surprised that this is happening in banking. That they are investing in their stock to such a degree appears (to me) to show confidence that I didn't suspect existed in such great measure. Now... with regard to war... that's a whole 'nuther issue. I think politicians tend to think war is a big financial energy builder... oh yeah? I've written a sixty page paper on that one... you should read it sometime... that is- when you're having trouble sleeping... it's a snoozer.

SEP

2008

I think it all boils down to Level Three assets.

From the article in question:

"...Insider buying may not be the best financial indicator, Schutz said. He pointed to former Wachovia Corp. Chief Executive Officer Kennedy Thompson, who bought 100,000 shares of the bank at $39.19 apiece November 16, 2007. Wachovia closed at $16.75 Sept. 5 on the New York Stock Exchange, and has declined 56 percent this year...."

Best regards......

Terry- That's the stuff I notice. I've noticed the prices... yes they rise a bit but they seem to be falling substantially. I suppose we all look for the bottom and every investor wants to make money... but it's not always a sure bet. Good comment.

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