Saturday, May 28, 2005

A tale of two insider buying patterns

In this post, I had mentioned Eyetech as a potential target, and that the insider selling made me wait for a better buying point. Turned out the insiders likely knew what was coming! Eyetech (EYET) last week lost 40% when a competing drug from Genentech was reported to be much more effective. At this point, the overreaction has made Eyetech cheap enough to start buying but only in small numbers. I will think of buying in large numbers if and when insider buying shows up. QLT Inc (QLTI) was also hurt, but to a lesser extent, and it still remains a target.

Another interesting case turned up last week. Here, insiders were either ignorant or were aware of the risk, but assumed, wrongly, that the odds were in their favor. Boston Communications Group (BCGI) last week lost around 75% of its value when it lost a major patent battle. The award imposed by the jury could send the company to Chapter 11. I had bought a few earlier, around $8/share, when significant insider buying showed up. To me, it feels like the insiders never thought they would lose this one, which also explains the absence of insider selling. The stock today is a highly speculative buy, since it would be a wild-ride from here to the end, which may take as long as 2 years, while the company tries to exhaust all the appeals paths.

Inspite (or because) of the above, insider buying still remains the most important factor when making buying decisions.


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