How Often CEOs Who Call the Bottom Are Actually Right
Calling a bottom is easy. Buying it is more convincing.
Overview
When CEOs say their companies' stocks have bottomed, investors tend to listen. But they probably shouldn't. At least not without looking at what they do next.
The truth is, corporate executives know more about their businesses than almost anyone. They see customer orders, hiring trends, inventories, pricing, and cash flow long before most investors have pieced together the same picture from quarterly reports. But knowing your business doesn't make you particularly good at predicting your stock price.
Details
A recent Wall Street Journal analysis looked at roughly 1,400 insider purchases of at least $100,000 at S&P 500 companies over five years. About 75% occurred after the company's stock had fallen. Yet just 15% of those stocks recovered all the way back to their pre-decline price. The median stock gained only about 2% during the month following the insider purchase. And remember, those executives weren't just talking. They were putting their own money on the line.
Source
Originally published at www.fool.com.