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"We Need to
That's what a fellow named Mark Carter said to a young stockbroker named George Munsey, after a tennis match in Hollywood, Florida.
Munsey and Carter had a drink in the clubhouse… then drove to the privacy of Carter's hotel room.
There, Carter pulled $10,000 in cash from a suitcase. He instructed Munsey to take the money and buy stock in a casino and hotel business called Resorts International. Carter was so confident in his investment he asked to borrow an additional $10,000, to buy even more of the stock.
Munsey took the cash… then made the loan and the purchase.
Over the next two years, Resorts went from $9.50 a share to $300. Investors like Mark Carter made as much as 3,057%. In fact, the stock went up so fast, CBS Evening News did a story on the "instant millionaires" it created.
How did Mark Carter know it was such a good time to buy?
In short, because he was an insider.
You see, at the time, Carter was the company's Operations Manager. He knew from recent meetings that the state of New Jersey was thinking about giving Resorts a casino license… which would ultimately send the stock skyrocketing.
Two years ago, it would have been almost impossible for you or me to profit from the true events I just described.
But now, thanks to a change in the law, you can make the kind of money that was once reserved only for executives at the highest level. In other words, insider trades are now available to you and me as regular investors.
Here’s what I mean…
On August 29th, 2002, Congress passed a piece of legislation called the Sarbanes-Oxley Act. Part of this Act changes the way corporate insiders are required to report the buying and selling of their own stock.
You see, before the new law of August 29th, insiders had up to 40 DAYS to reveal that they had bought or sold stock in their own company. In other words, by the time you or I found out about what the insiders were doing, it was too late to capitalize on the situation.
But now… corporate insiders have just 48 hours to report their trades. And they have to submit their reports electronically, so you and I get to see what they are doing almost as soon as they buy or sell.
There’s not a single executive in the United States who is exempt from this law… and there’s good reason for these guys to comply. Failure to do so can result in fines of up to $2.5 million, and 10 years in federal prison.
The beauty of this new law is that you and I now get to see exactly what insiders are doing--practically as soon as they make their moves. It means you can make the same gains they do… at least on a percentage basis. And best of all, it’s completely legal.
The way I look at it… there are dozens of reasons why an insider might SELL his company’s stock. He may want to pay for his kid’s college… or buy a vacation home… settle a divorce… or a million other things.
But there’s only one good reason for an insider to BUY stock in his own company--because he knows the price is going up very, very soon.
I’ll tell you more about how the new law works in a moment, but first let me show you two deals--going down right now--where you can capitalize on inside information, and make a lot of money.
DEAL #1: Why a natural gas company Executive just bought $30 million worth of his own stock
Warren Buffett, the richest investor in the world, recently bought a natural gas pipeline company called Mid-America Energy. He bought it from Enron, as the company was going bankrupt.
We estimate Buffett has already made more than a billion dollars on the deal, with a lot more to come.
He was in the right place, at the right time, with the right amount of money.
Now, there’s a nearly identical situation, where insiders are taking advantage of bankruptcy, to buy the best natural gas assets in America--for literally pennies on the dollar.
Unlike the Buffett deal, you can get into this one yourself…
The situation involves an energy and pipeline company called El Paso. Based in Texas, this company did well for a while--especially when California energy prices spiked in 2001. But eventually, the whole market collapsed. Enron went bankrupt... and El Paso stood on the verge of going under too...
El Paso was desperate to raise cash, to pay off over $6 billion in debt.
And, at this moment of crisis, in late 2003, the second-largest natural gas pipeline company in the United States made El Paso an offer to buy the heart of its natural gas pipeline infrastructure, known as the GulfTerra Pipeline. The deal was simple: El Paso would get $475 million, and give up a 50% ownership stake in GulfTerra.
But then, something incredible happened: El Paso ran into major problems. The company had to admit that 41% of its oil & gas reserves didn’t really exist. Several other energy companies (like Royal Dutch Shell) have recently done the same thing. But El Paso’s goof was much worse than the others.
So El Paso had to raise even more cash this year. Instead of selling only half of its biggest pipeline--GulfTerra--it had to sell ALL OF IT… at fire-sale prices.
The only buyer? The same company who made the original offer… the second-largest pipeline company in America. They bought these assets--which pump natural gas from the Gulf of Mexico to the suburbs of Chicago, and across 13 states in the heart of the country--for a song.
As soon as the deal was completed, the pipeline company’s insiders started buying their own stock as fast as they could.
The Chairman of the Board bought $8 million in shares, on the open market, in one day. The very next day he bought another $4 million.
The CEO bought $2 million worth of stock at the same time.
Two other senior executives bought $5 million worth.
Altogether, immediately following the acquisition of GulfTerra, these pipeline executives bought $20 million of their own company’s stock. It was the largest amount of insider buying we’ve seen in years.
Obviously, these men know--better than anyone else--what a great deal they got from El Paso, a company in deep distress.
In fact, just a few weeks ago, the chairman of the pipeline company bought an additional $30 million worth of stock. His total purchases in the last six months total $50 million. The CEO is still buying too, recently adding another $5 million for his private account.
These men are giving us the tip of a lifetime... with their own dollars on the line.
What’s going to happen to the share price? There are no guarantees, of course, but more often than not, when insiders are buying their own stock in a frenzy like this, it leads to amazing profits. We’ve seen it happen dozens and dozens of times before...
In August 2002, insiders at Crown Castle International went on a similar buying spree. In just nine days, 16 different employees bought a total of 2.5 million shares of their own company's stock. Within 8 months, shares of CCI were up 312% and have risen 917% as of today.
In the first week of February 2003, one of the company Directors at a company called Akamai Technologies got very excited about his company’s prospects. He bought 400,000 shares on the open market. Three months later, the shares were up 194%… in another year, they were up 1,108%
Last year, insiders at a company called Amedisys bought their own stock 21 times, spending a total of $3 million. Many of these shares are up 560%
The point is, you can now make as much as corporate insiders are going to make on this deal. They had to buy on the open market, just like you. All you have to do is buy soon--before the price takes off.
Remember, insiders have bought over $60 million worth of stock in a little over a week. But the share price is still very, very cheap.
That’s why this is the best insider trading opportunity in the world right now.
You can learn everything you need to know about this situation in a Research Report called: The 2 Best Insider Buying Opportunities in the World Right Now. I’d like to send you this report free of charge if you are interested.
I’ll show you what I mean and how to get it in a moment, but first let me tell you about the 2nd best insider trading opportunity in the stock market today…
Deal #2: Your Only Realistic Chance to Make 1,200% in Stocks in the Next Year
Recently, a director at one of the top graphic software companies in America called her broker and bought $500,000 worth of her own company's stock on the open market.
Five days later, three more company Directors bought a combined $9.6 million worth of company stock.
Over the course of the past two months, a total of 6 different company Directors have spent over $20 million buying their own stock at market prices.
What's going on here? Do you think now might be a good time for you to buy, too? "When Insiders Dip Into Their Pockets..."
"One of the surest signs of a stock's long-term direction is what executives are doing with their own stake in the company. When insiders dip into their pockets to buy their own company's shares, a rise in price is often not far behind."
--Reuters Dec. 5, 2003
So do I. At the same time these insiders were buying, the company announced plans to buy back as much as $300 million of its stock. Every share of this company is going to be worth more money - simply because there's going to be a lot less of them on the market. The company's quarterly report reveals that it has already bought one million shares in August for $10.5 million. All told, these insiders have purchased more than 1.5 MILLION total shares of their own company in the last 3 months.
I think this company is a screaming buy right now. I wouldn't be surprised if it doubles by the end of this year, no matter what happens with the rest of the stock market. Right now, it's still incredibly cheap… and it's growing like crazy.
Can you really double your money with a graphic software company?
You can… if you get this good of a deal… with a company that's growing as fast as this one is. This company's technology was used in NASA's Mars rover launch this year, its product has won over 75 industry awards worldwide, and it counts Microsoft as its biggest and best customer, selling $91 million of its product to them last quarter.
Remember, insiders can sell for lots of reasons… but they only buy for one--because they know the price is going up.
Just look at what happened with a few similar situations recently…
In January of last year, two directors and a Senior Vice President at a company called Novastar Financial (NFI) began buying tons of their own company's shares. One director bought $1.2 million worth of NFI stock… another director bought $1.3 million, and the Senior Vice President bought $308,000.
A little more than a year later, they made 402% profits
In August of 2002, John Stanton and Theresa Gillespie began taking a big position in their own company, Western Wireless (WWCA). John is the CEO, and Theresa is the Vice Chairman. Together, they bought 1 million shares. Do you think they knew something good was in the cards for Western Wireless stock? I'll let you be the judge. In three months, their investment was up 130%… today their investment is up a total of 1,200%.
Investing now in this graphic software company is the 2nd-best insider buying opportunity in the world right now. It's covered in complete detail in our research report called: The 2 Best Insider Buys in the World Right Now.
With both of these insider situations, you have the opportunity to double your money in the next few months. Over the next year, both of these situations could make you gains of 750% or more. Easily. Remember, you could make the same profits as the corporate insiders who just took giant positions with their own money.
If these opportunities interest you, let me show you how to get a copy of this Research Report, free of charge.
How to Beat the Market by 100% --Proven by a PhD
My name is George Rayburn.
I am the Executive Director of Stansberry & Associates Investment Research.
Our group was formed in 1999. Today, more than 100,000 individuals in 127 countries pay us for independent financial research and recommendations.
Unlike Wall Street investment banks, we are completely independent from the stocks and other investments we cover. We sell only our research. We don’t solicit banking business, and we don’t provide brokerage services. Our only income comes from selling our best ideas to our subscribers. If our ideas work, our subscribers stay with us. If not, they can cancel, and even get their money back. No hidden interests or secret agendas.
Our private organization is based in Baltimore. We also have smaller offices in Florida, Oregon, and Washington.
We don’t typically advertise on TV, radio, or in magazines or newspapers. Instead, we invite people whom we believe may have an interest in our work.
In all, our organization has more than two-dozen research analysts and assistants. These folks have well over 100 years of combined experience in the financial industry, and have worked as stockbrokers, mutual fund vice presidents, and equity analysts for some of the most important money-management firms in the world.
The only way to be invited to join our group is to receive an invitation such as this one. Based on the kinds of publications you’ve subscribed to in the past, I think you might appreciate—and benefit from—the kind of work we do.
Throughout this letter, I’ve been explaining our newest investment research service. It’s called the Inside Strategist, and it’s based on the simple but proven idea that you can make a lot of money in the stock market by following what rich insiders do with their own money.
We developed this research service after studying just how successful this strategy has proven to be over the past 50 years. For example…
A study by Univ. of Michigan finance professor H. Nejat Seyhun found that “you can basically double your returns” by purchasing stocks with heavy insider buying.
The investment firm Tweedy Browne published a report that proved buying stocks with heavy insider buying beats the stock market as a whole by as much as 300% over a five-year period
Carr Bettis, a professor at the Arizona State University Management School, found that investors who bought stocks that were popular among insiders on average earned annual total returns that were 100% more than the S&P 500 (source: Fortune Magazine, May 1, 1995)
Other respected financial journals have reported similar findings, including The Journal of Finance, The Journal of Portfolio Management, and The Southern Business and Economic Journal. Graduate school studies at Michigan State, Ohio State, and the London School of Economics have proved similar results.
“But that’s illegal, right?”
Whenever I explain to someone how insider trading works, their first reaction is usually, “That’s illegal, right?”
Well… what most investors don’t know is that there are actually two kinds of insider trading: the legal kind and illegal variety. "There is Little Incentive..."
"There is little incentive to buy unless an executive figures shares are going to be worth more in the future. And when the people who know a company's prospects the best buy in, in can be a bullish signal for outside investors."
--Smart Money, 9-25-2002
For the record, an “insider,” according to the U.S. government, is an officer or director of a publicly traded company (like the CEO, treasurer, vice president, controller, chairman, or executive director). A person who doesn’t work at a company can also be considered an “insider”… if he or she owns 10% or more of a company’s stock.
When most people think about insider trading, they think about only the illegal version--such as the recent case against Martha Stewart and Imclone CEO Sam Waksal. Waksal got in trouble because he sold stock after learning about a failed drug trial--information that was not yet available to the public.
For people who don’t play by the rules, there’s jail time… and huge fines.
Anyone (including brokers, friends, and family members) can get in trouble for illegal insider trading--if they profit from secret information that’s not yet available to the public. That’s the key.
So when is trading legal for these corporate executives?
Congress realized they couldn’t completely ban insiders from buying their own stock. If you think about it… who would bother to start a business if you weren’t allowed to buy your own stock and share in the profits? Probably nobody.
So they passed a law that basically says corporate insiders are allowed to buy their own stock as often and as much as they like, on two conditions:
1) They can’t trade based on secret information not available to the public… or before a big upcoming company event.
2) They must report trades to the U.S. Securities and Exchange Commission (SEC).
The SEC is required to make this information available to the public under the Freedom of Information Act, on a document called FORM 4. It details which insider made a trade, how much he’s buying or selling, and how many shares he or she owns in total.
The good news is that you as a regular investor can NEVER get in trouble for illegal insider trading, as long as you make your trades based on what we follow--that is, what corporate executives report to the SEC after they’ve made a trade.
For decades, even though insiders had to report their trades, the game was still totally rigged against the average investor (like you and me). That’s because insiders could move in and out of stocks as much as 40 days before you and I got to see what they were doing.
But now, the situation has changed…
The Sarbanes-Oxley Act of August 29th, 2002 changed SEC code 16(a), which means you get to see what insiders are doing within 48 hours of their trade… instead of the 40 days they used to have to hide their moves!
As I mentioned, it’s completely legal for you to make any trade based on what these executives report to the SEC.
There’s something else I want to tell you about regarding insider trades… it’s another way to profit from Insider deals. Let me explain exactly what I mean…
The 921% “Buy-back” Secret
Sometimes, instead of using their own money, corporate insiders use company profits to buy their own company’s stock on the open market. Barron's Study Proves It: Buybacks Pay
Jacqueline Doherty wrote an article in the June 7th, 2004 issue of Barron's proving that investing in stocks that are buying back their own shares can make you a lot of money. Doherty studied 1,500 stocks listed on the Standard and Poors Index from 1999 to 2003.
She found that only 95 of these companies reduced their overall share count by buying back stock. The 20 companies that most aggressively bought back shares returned an AVERAGE of 119%. Meanwhile, the S&P 500 stock market index during the same period was DOWN 12%.
You can make a lot of money when you find the right company that’s buying back its own shares.
If that’s confusing, I assure you, it’s very simple. Let me show you with an example…
Several years ago, executives at a homebuilding company called NVR realized their stock was a lot cheaper than it should be.
The people who ran the company knew business was good--and was going to get even better very soon.
So they took the profits they made from building houses… and instead of expanding their operations in other states… or building a bigger business, they simply took the money and bought NVR stock on the open markets, just like you or I could do. Over the course of a few years, they bought back 26% of the outstanding shares.
It was a brilliant move. During that time, NVR stock zoomed up 921%.
The company got a lot richer… simply by buying back its own stock.
In the world of finance, this is called a “corporate buyback.” It’s what happens when senior executives realize that their stock is poised for a big increase. They use company profits to repurchase shares on the open market, and put these shares in the company coffers.
Corporate buybacks don’t happen often. But when they do, the profits are amazing…
AutoZone bought back their own stock in recent years. The $6.5 billion auto parts retailer aggressively bought back 38.5% of its own shares… and investors watched the share price go from $33 to $103: a 212% profit.
A company called GTech Holdings initiated a similar plan in recent years, buying back 26.9% of their shares on the open market. Regular investors like you and me could have made profits of more than 400% during this period.
As I mentioned, corporate buybacks are pretty rare. Barron’s reported recently that of all the stocks in the S&P 1,500 (which covers big, small, and medium-sized firms), only 95 companies owned more of their own shares in 2003 than they did in 1999. In other words, only 95 companies were actively buying up their own shares on the open market.
But the good news is that when you find one of these opportunities, the profits are amazing. According to Barron’s study, the 20 companies buying back the most shares saw AVERAGE profits of 119% during this period.
A writer at Fortune Magazine did a similar study. Carol Loomis looked at 1,660 stocks over a 10-year period and found that companies that bought their own shares beat the S&P stock market index by an average of 61%.
The good news is that there’s one company right now that is very cheap… and is buying back its own shares like crazy.
You may have heard of this company before… but you probably didn’t know that...
Thanks for an outstanding article.
Have seen charts showing the connection between insider's transactions
and stock trends.
A good book on the subject is "Investment Intelligence from Insider Trading "
by Nejat Seyhun.
Will be posting more on this subject.
thanks again and welcome to Stock Talk,