It's a time-honored tradition of the marketplace, the stock drops, the CEO walks (though only figuratively these days) on to the floor of the exchange with his first tranche of buy orders to be presented to the specialist in the pit for immediate execution. (Confidence is key?)
Does it 'work'? It's a tricky call, because although normally, significant increased buying will create upward price pressure, as the lowball orders are fufilled and prices need to increase to entice new sellers. But in this case, the buy order itself is inextricably linked to the news of the buy order, and if the latter is viewed as desperation (e.g. because the buy is seen as a token amount of shares) the stock can fall anyway, not just despite the support, but paradoxically because of it... Here's a fox article that tracked the major CEO inside buys back in 2011, and plotted the results...
Personally, I would rather see many, smaller buys from more mid to upper management (though these can be coerced or financed by a wink and a nod), than this tired CEO spectacle.
"I would rather see many, smaller buys from more mid to upper management (though these can be coerced or financed by a wink and a nod), than this tired CEO spectacle."
Well, in addition, the VP of Engineering has bought ~$200,000 worth of shares since the fall:
Maybe he's oblivious to the internal problems or may be he knows that things are going to be great...
I don't think mid management purchases require disclosure.
What about the erstwhile CFO?
He would naturally be doubling down at this point because:
1) He was bullish on the previous call(s), when stock was even higher
2) They have now beat their number on the 'street'
3) He knows that his departure is truly unrelated to any 'irregularities" in accounting and therefore the drop is due to an unwarranted fear.
4) He can buy on this knowledge because this information is public, even though it is not believed, "We made it clear that the CFO's departure was due to illness. its not our fault you didn't believe us..."
The most fascinating thing about this is number 4, because it could lead to a new form of insider trading, wherby one makes improbable but actually true statements, expecting them to not be believed, and then capitalizing on that...
As for how I derided the CEO for buying shares on the open market, I feel like I am just criticizing without offering an alternative, so I would like to propose a new trendy bolstering strategy. Mr. Fernandez should simply goto the exchange and take 10 million $ and buy naked shorts on Axis. Yeah! And the fanboys go wild!!!
IPVMU Certified | 05/22/14 04:36pm
Don’t ALL public companies require executive leadership to purchase and own a certain amount of company stock AND also requires them to buy (at a nice discount) or sell stock (at a nice gain) depending on which way the price fluctuates. I know my company does. Maybe he just was behind in his percentage ownership and was using this price drop to catch back up.
Also leaders are granted some premium stock options that they are required to use or lose. I highly doubt he bought these shares anywhere near the lower limit of his stock option purchase price. Basically I am saying this doesn’t seem weird or out of the ordinary from what I see.
From talking to a few analysts, they found it to be a positive sign.
Maybe he just was behind in his percentage ownership and was using this price drop to catch back up.
And maybe the CFO is re-hired after making a quick recovery, restoring prior confidence and valuation... No harm, No foul, right?