Bear Stearns insider’s bad timing

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Bear Stearns (BSC) sank to a new low in heavy trading Wednesday after an insider slashed his stake in the struggling investment bank. Director Paul Novelly sold 50,000 shares last week at $86.78 apiece, Reuters reports. The sale, which netted Novelly $4.3 million, leaves him with 125,000 shares, according to Securities and Exchange Commission filings.

Novelly, who runs privately held Apex Oil and has been on the Bear board since 2002, built up much of that stake last year at much higher prices, just before the firm ran into deep trouble with bad bets on the imploding mortgage market. Novelly bought around 100,000 Bear Stearns shares in the first quarter of last year - including a three-day, $7.4 million buying binge last March at around $148 a share. At recent prices, that bet is under water to the tune of $3.2 million.

Novelly's folly shows that even insiders, whose actions are keenly observed by other investors, aren't a foolproof gauge of a company's health. As one observer told the St. Louis Business Journal in laying out the merits of tracking insider purchases, "The insider seems to think things are going well or the shares are underpriced." In this instance, the insider seems to have been sadly mistaken.