Not since 1995 have so many chief executive officers of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.
Stock purchases by executives at banks, consumer lenders and insurers in the Standard & Poor's 500 Index climbed this month to the highest in 12 years, data compiled by Bloomberg show. That's the strongest "buy" signal, according to analysts at Muzea Insider Consulting Services LLC and InsiderScore.com, which work for hedge funds tracking executive trading patterns.
Wachovia Corp., American Express Co., CIT Group Inc. and American Capital Strategies Ltd.'s CEOs or directors added to their holdings as the rising cost of credit spurred by mortgage defaults sent the S&P 500 Financials Index to a 13-month low on Aug. 15. Insiders at companies in the index have bought $26.9 million of stock so far in August.
"That is a good sign that people closest to the business have confidence in it and invest in it," said Kevin Cronin, who oversees $187 billion as head of investments at Putnam Investments LLC in Boston. "It's just indicative of how overly discounted the value of some of these financial stocks has become."
Putnam increased positions in banks and insurance companies over the past month as the shares declined.
The increase came as the S&P 500's biggest drop in four years wiped out $1.41 trillion in market value between July 19 and Aug. 15.
"You've got very negative sentiment, the public is frightened, a lot of hedge funds have sold out, and now there's insider buying," said George Muzea, founder and president of Reno, Nevada-based Muzea Insider Consulting. "If you can't make money at this point in time, you can't make money."
Muzea charges as much as $500,000 a year for his service and wrote a book on insider buying and selling called "The Vital Few Vs. the Trivial Many: Invest With the Insiders, Not the Masses."