Oil Insiders Bullish For Their Own Stocks

Oil Insiders Are Bullish for Their Own Stocks

Last November and December, many believed the oil crash had hit bottom, and a horde of insiders bought shares in their own companies.

I’m not talking about just a few thousand shares, either… They scooped up hundreds of thousands of shares – ultimately betting millions on oil’s imminent rise.

Continental Resources (CLR) CEO Harold Hamm, for instance, purchased 71,000 shares for $67 each in September!

But just after the buying spree, the price of crude oil dropped another $20 per barrel, and only recently has it started to recover.

So what are we to think? Clearly, these insiders were fooled by a false floor. Here’s what we can learn from their blunder…

Following the In-Crowd

Insider buying is one of the best indicators of the future success of a company’s share price. Especially when insiders buy in clusters, as it shows conviction within the management structure.

Obviously, insiders at a company are privy to information that outsiders aren’t.

Thus, when they trade on that information, they must follow strict rules that restrict when they can sell. Generally, insiders can’t sell for at least six months after they’ve made their purchases.

Most insiders don’t buy shares to trade, however. They buy because they see long-term value in their company. Buying shares is a way to participate in that value creation.

Here’s a list of companies that saw substantial insider buying. It includes the price point close to where they bought, and where shares are trading today…

Insiders Stock Up On Their Own Shares: Price Points of Companies With Heavy Insider Buying

Unfortunately, the insider track record, for the most part, isn’t looking very pretty…

Foolhardy Play or Methodical Move?

It could be too early to pass judgment, but it’s rare that insiders buy too early, as they did in the case of the energy price collapse.

Judging by the sheer volume of trades in November and December, they were buying with the hopes that oil prices had bottomed in the $60s. But as we all know, they fell below $43 a few weeks later and have only recently been able to trade around $50.

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