THE DAILY TRADING RISK: Insider Trading Has Been on the Rise: Buffett and Toll are the Biggest Beneficiaries

Tuesday, December 8, 2009

Insider Trading Has Been on the Rise: Buffett and Toll are the Biggest Beneficiaries

*there are two things of note here for me. One is that Big Ole Bob has been touting for months about how the housing market has been turning around, especially with all the government largesse thrown at the likes of builders (Toll Brothers), and how his company has been weathering the storm with more success than other builders. Yet the ENTIRE time, he has been selling off his stock holdings in ever increasing numbers. One example is that I was watching him on Squawk Box in the morning giving an interview about how everything is la te da, and then in the afternoon he is selling the company's stock. You know who is selling ETrades stock? No one. So you do the math. Scheisters come in all shapes and sizes. CEO's are usually the worst!

via ZeroHedge.com
It seems like yesterday that Bob Toll was propounding the benefits of stimulus packages for housing and the ever improving status of new home sales (solidly grounded in the same sands as Dubai is now sinking into). Yet while we at Zero Hedge have enjoyed taking repeated stabs at Mr. Toll's seemingly endless selling of his own stock, we have not learned our lesson. Which is why we present his insider transaction in a new and original way, courtesy of Bloomberg. As the image indicates, Mr. Toll's money is roughly 180 degrees from where his mouth is.
Yet Bob is an amateur when compared to such prominent patriots as Bill Gates and Warren Buffett, both of which have repeatedly stated their support for the good ole' US of A. Indicatively, we present the most recent transactions by both Mr. Gates and Mr. Buffett in BRK/B shares. This insider trading pattern is comparable for most other holdings of these two truly patriotic gentlemen.
Mr Buffett:

*the second thing to consider here is whether Warren has lost his investing touch. Just look at when he started to get his SELL signals, when it was too late in most instances. Buffett has bought huge stakes in WFC, HOG, GE and GS. If I were a gambling girl, and I am, I would SELL SELL SELL. And most of Warren's trading is done under the guise of Dark Pools. Something small retail investors like you and I never get to see until after the fact. -Tradebum

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Books

Debt of Honor by Tom Clancy
Den of Thieves by James B. Stewart
Fundamentals of Investing in Oil by Chris Termeer
How We Got Here by Andy Kessler
How the Stock Market Works by Dalton NYIF
How to Day Trade Stocks by Harvey Walsh
Liars Poker by Michael Lewis
Manias, Panics and Crashes by Kindleberger and Aliber
Market Wizards by Jack Schwager
One Good Trade by Mike Bellafiore
Options as a Strategic Investment by Lawrence G. MacMillan
Reminiscinces of a Stock Operator
Secrets of a Pivot Boss by Frank Ochoa
Steidlmayer on Markets
Street Smarts by Linda Raschke
Team of Rivals by Doris Kearns Goodwin
Technical Analysis of the Financial Markets by John Murphy
Thank You for Arguing by Jay Heinrichs
The Ascent of Money by Niall Ferguson
The Big Short by Michael Lewis
The Forgotten Man by Amity Shlaes
The Intelligent Investor by Benjamin Graham
The Logical Trader by Mark Fisher
The Playbook by Mike Bellafiore
The Power Game by Hedrick Smith
The Shack by Wm. Paul Young
The Smartest Guys in the Room by Bethany McLean and Peter Elkind
The Taylor Trading Technique by George Taylor
The Traders Bible by Richard Wyckoff
Unconventional Success by David Swensen
When Genius Failed by Roger Lowenstein
Women & Money by Suze Orman

SHORTING STOCK

Lets say you think GE is headed down in price. You would borrow 100 GE shares from A at say, $10, then sell them to B for $10, and when the price goes down to say $5, you would go into the market and buy them at $5 and give back the shares to A, pocketing the difference.

The Mechanics of a Short-Sale
by Andrew Tobin
When you sell stock short, you are selling shares you don’t own, hoping they will go down. Your broker just borrows someone else’s shares for you to sell. Eventually, you have to buy them back and return them (unless you’re really lucky and the stock goes all the way to zero and disappears, in which case there’s nothing to return). If you can buy the shares back for less then you got for them, you make a profit; if you have to pay more, you suffer a loss.

But where do brokers get shares to lend short-sellers? The first thing they do is look to see whether one of their other customers holds the same stock in a margin account. Anyone with a margin account has signed an agreement authorizing the broker to lend his shares. He will not know they’ve been loaned, and he needn’t worry about it either way. He’ll still get his dividend (it will come out of the short-seller’s account); he will still be able to sell at a moment’s notice. (The broker will just replace the shares by borrowing someone else’s shares. Or, if that proves impossible, he’ll "buy in" the short-seller, forcing him to cover his short — typically at a loss — and return the shares. This doesn’t often happen, but it definitely can. It’s one more risk of the hazardous short-selling game.)

Brokers love short sales, because although you take all the risk, they typically get the interest on the proceeds of the stock you’ve sold. That’s right: you shorted 1,000 shares of some stock at $50; well, that means the broker got $50,000 in cash money in return . . . but you won’t find that money in your account. It’s earning interest in his account, whether he be a deep discounter or the most expensive full-service firm on the block.
(Active, pushy customers can sometimes twist arms and, if they do enough short-selling, persuade their brokers to share some of that interest. But few even know to ask and fewer still will be told yes. If you do $20,000 a year in commissions, say, well, that might be a different story.)

If your own broker doesn’t have shares of stock in one of his other client’s margin accounts to lend you, he will call around to find a broker or institution that does have shares to lend. Harvard, with its $10 billion endowment, makes some good money this way.

When a broker or institution lends stock, the "rent" it charges is interest on the value of the shares. In other words, your own broker has to split some of the largess with the lender (making him all the less eager to share any of his share with you).

*to give you an indication of how crooked the market is lately, Fidelity has put out word that they will not lend out shares of IWM.

If you have more questions feel free to email me at tradebum@gmail.com.

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Tuesday, December 8, 2009

Insider Trading Has Been on the Rise: Buffett and Toll are the Biggest Beneficiaries

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