These insiders could lead you to ruin

banker_xAnytime we see significant insider buying we should take notice, but that doesn’t mean we should always follow the insiders.

Despite having access to insider information, company officers and directors are no different than the average investor. While they may be acting on some great news that only they know, they may also be acting on pure emotion.

The insiders don’t know everything, and I think these insiders are acting more with their hearts than their brains:

The insiders simply DO NOT know everything. They can’t see into the future and they can’t manually change the price of their stock. Yes, they know more about their company than us, and yes, they often profit from inside info by getting in on their own company’s stock before the public.

But that doesn’t make them infallible. Sometimes insiders can be dumb. And by that I mean they can act on emotion more than logic and reasoning.

The average investor will often see a stock fall and view it as a bargain to buy, while The Midas Legacy readers should know that a stock that has just fallen is usually unhealthy, and can always fall further.

Let’s take a look at the chart for Metabolix Inc. (MBLX) from Stockcharts.com:

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I omitted the prices at different points because they simply do not matter. To me, this is an unhealthy stock and one that I would avoid for the time being.

Yet the insiders for MBLX have decided that now is the time to buy.

Three different company insiders recently bought over 6 million shares totaling a value of $4.35 million!

When I saw this I immediately thought of two possibilities…

1)    The insiders just found out about some new piece of info that has the potential to send the price up, or

2)    The insiders are trying to save their stock by buying (at what they may see as a bargain price) and attempting to attract new investors.

Although there is no way for us to know the correct answer right now, we don’t need to know it.

That’s because we should do the same thing either way. Wait for the actual price of MBLX to tell us what to do. If the price starts rallying and making leaps upward, we can get in on this stock because the insider probably knew something when they bought shares. If the price continues to flounder and struggles to move upward consistently, we can sit on the sidelines with our money safe.

If we follow the correct principles—those taught in our Stock Code Breaker course—we should never lose.

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