More on insider selling at Toll Brothers Inc.

In an earlier entry, I wrote about insider selling at Toll Brothers (TOL), a luxury home builder. As I write this, Toll Brothers (TOL) trades at $28.26, down from a 52 week high of $58.67. Over the course of a year, insiders at TOL have sold more than 4.4 million shares, at prices ranging from around $36 to roughly $58. Most of those were sold by the actual Toll brothers, Bruce and Robert.

Meanwhile, as late at 16 March, 2006, Robert Toll, chairman and chief executive at Toll Brothers Inc still sees growth in the housing market.

"Last time I saw 6 percent was 1966, except for the last couple of years," Robert Toll, the company's chairman and chief executive, said Wednesday in an interview with The Associated Press. "If rates go to 7.5 percent, we'll take it. We can still do a whole lot of business."

I wonder if he really believes his own words...

The housing bubble and insider trading

Today I was looking at reports for companies where insiders have recently bought shares with their own money. I'm not talking excercising options, I'm talking buying shares on the market. When insiders buy shares in their company with their own money, that says something about their future outlook and confidence in the business. Take a look at what Michael Dell bought last week. Almost 3,000,000 shares! Also, folks at Chesapeake Energy Corp. have been doing some buying recently. All good indications for those companies, don't you think?

Then I began to wonder what insiders at companies that benefitted from the housing bubble have been up to. Take a look at the insider trading at Toll Brothers. Some selling in January of this year (60,000 shares). Some more selling in September last year, to the tune of 620,000 shares. But July 2005 is when the Toll brothers, Bruce and Robert more than 2 million shares combined! What about Home Depot? Again, brisk selling activity in March 2006, and June and September of 2005. Then there's Washington Mutual, a company that does a lot of mortgage business.

What was going on around July last year that triggered these sales? Does the insider selling in the last few months mean that folks that made money on the housing bubble see the tide turning? Do you know of any other companies that raked in fat profits during the booming housing market whose insiders have been unloading shares?

Your House as a Retirement Nest Egg?

I've heard people say "Saving? I don't need to do that, my house will always appreciate and when I'm retired, I'll live off of the house." First of all, this assumes they'll sell the house to turn the extra value into cash. But what if the house values decline for the next 10 or 15 years?

Can it happen? Well, it happened in Japan.

"Japan provides a nasty warning of what can happen when bubbles burst. Japanese property prices have dropped for 13 consecutive years, by a total of 35% from their peak in 1991 (see chart). Yet the 36% rise in real house prices in Japan in the seven years to 1991 was actually less than the increase over the past seven years in all but one of the eight countries listed above where prices appear overvalued."

The global housing market: Flimsy Foundations. [Economist, Dec. 2004]


Many indicators are now pointing to a slowdown in what has been an incredible housing market. You see more for sale signs along the streets. Houses are on the market longer. Inventories are growing. Prices are being reduced more than once, rather than being bid up over the original asking price. Even the mainstream media has picked up on it.

A lot can be said about whether we are in a housing bubble and if and when it's going to burst. The bottom line is that it's rarely a good idea to put all your eggs into one, well, nest. Diversify. Maybe house prices will always go up and maybe they won't. When it comes to retirement, save money, invest wisely and diversify.

The Value of the S&P 500: What About the Small Print?

Pensions are part of an organization's obligations. As such, for an investor, it's important to understand whether the company he invests in can meet its obligations. The trouble with pension liabilities is that current accounting rules allow companies to hide them in the fine print. Fool.com explains in this article, Stocks with Shocking Debt:

"Unfortunately, filings don't tell the whole story. There's a whole slew of debt that companies don't have to report on the financial statements under generally accepted accounting principles (GAAP). What kinds of debt do companies keep hidden? Pensions and operating leases, to name two. And pensions in particular are quickly becoming a dangerous red flag."

The executive director of the Pension Benefit Guarantee Corportation (PBGC, see earlier post) estimated the total underfunding of pension obligations at a whopping $400 billion at the end of 2002.

If exchange traded companies are forced to change the way they account for these liabilities and other post retirement liabilities, this could have have a drastic impact on their cash positions (What About All that Cash? Via The Big Picture:)

"While it is true that companies have tremendous cash positions currently, if under-funded pension plans and healthcare liabilities are moved from the footnotes of the financial statement to the balance sheet, said cash evaporates. For example, the FASB (Financial Accounting Standards Board) is proposing to move the status of pension and OPEB (post-retirement employee benefit) plans out of the footnotes onto the balance sheet. If done, the notional "hit" to shareholders' equity for the S&P 500 is more than $250 billion."

Tags: pensions, retirement, S&P

A Pension Crisis in the Making?

Many people rely, at least in part, on a pension for income after retirement. What is a pension? A pension is an arrangement in which an employee receives income after retirement from an employer (for example an organization, a government agency or a labor union). The funds to pay for this income are typically acumulated during the employee's working years and are managed in a pension plan.

Some people, including members of congress, now fear a pension crisis. During the last decade, several large corporations have gone bankrupt. When companies go belly up and after the dust settles, the money these organizations accumulated in pension plans typically isn't enough to pay for the benefits that employees were promised. In other words, these pension plans are underfunded.

To provide a level of insurance, the US government in 1974 established the Pension Benefit Guaranty Corporation (or PBGC). To protect underfunded pension plans, the PBGC receives insurance premiums from the people that manage the plans. In the last few years, the PBGC has had to take control of pension plan of well known companies such as Bethlehem Steel, United Airlines, Enron, and many others. According to the PBGC web site, the agency currently protects the the pensions of 44.1 million American workers and retirees.

But what if the PBGC is underfunded? What if the agency that's supposed to protect pension plans doesn't have enough money to do so? We'll examine this issue and other issues around pensions and retirement in future posts to this blog.

Tags: pensions, retirement