A somewhat recent study on insider trading shows that there is a great deal of predictable ‘routine’ insider trading that is not informative as far as the future success of firms goes. The research study essentially divides the insider trading universe into two halves, with around 44% of all trades considered ‘opportunistic’ and the remaining 56% of all trades seen as ‘routine’. The set of information-rich ‘opportunistic’ trades, which simply refers to the non-routine kind of insider trading, is shown to have significant predictive power for future firm-specific news, events and returns.
Without having prior knowledge of this research study, Insider Monkey has been following a similar approach when selecting the insider transactions to be discussed in our daily insider trading articles. The Insider Monkey team ignores the insider trading conducted under pre-arranged trading plans, which can clearly be identified as routine insider trading, as well as ignoring insider transactions related to freshly-exercised options, as corporate insiders almost always cash out newly-exercised stock options, a set of insider transactions that also falls into the category of routine insider trading. By ignoring the routine kind of insider transactions, which usually tend to send uninformative signals, we deliver only the information-rich set of trades that can assist investors in their stock selection and analysis process. With that being said, let’s have a look at a set of non-routine insider transactions reported with the SEC on Thursday.
Through extensive research that covered the portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
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Board Member of Closed-End Investment Company Buys Shares at Discount
Let’s kick off our discussion by analyzing the recent insider buying activity at Central Securities Corp. (NYSEMKT:CET). Leo Price Blackford, Lead Independent Director since late-May of 2012, purchased 7,500 shares on Wednesday at a price of $21.49 per share. Following the recent purchase, Mr. Blackford currently owns 18,490 shares.
Central Securities Corp. (NYSEMKT:CET) operates as a closed-end investment company that mainly invests in common stocks, as well as bonds, convertible bonds, preferred stocks, convertible preferred stocks, and warrants, to name just a few. The company’s net assets per common share totaled $26.05 on September 23, while that day’s closing share price was $21.08. This implies a discount of around 19%, which possibly explains the reason behind Mr. Blackford’s purchase. Activist hedge fund firm Bulldog Investors reported ownership of approximately 138,000 shares of Central Securities Corp. (NYSEMKT:CET) in its 13F for the June quarter.
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The next two pages of this insider trading article will discuss several other insider transactions reported to the SEC on Thursday.
