Cytori Insider Buying Continues as Shares Rise

Trading and investing decisions are often driven by the psychological battle between fear and greed, confidence and doubt. You do your due diligence, you study financials and examine valuation and most importantly make your assessment of a company's future prospects. You finally make the decision to pull the trigger and you feel good about it because you know you've done your homework. Next day. the overall market takes an unexpected steep decline and all your due diligence becomes irrelevant. Self doubt gnaws at you and you realize that all your analysis doesn't matter if your investment is floating on a tide that continues to retreat. Well this is what the investing textbooks call "systematic risk" and there is not much you can do about it other than to buy expensive insurance on the entire market or just stay out completely.

On the other hand, there is the risk related to the particular company you just did your due diligence on. With regard to Cytori Therapeutics, a company that has been covered extensively on this blog (see below), while the potential is incredible, the risks are still there. There is always a lot that can go wrong. Are the clinical trials really going well? Are sales ramping up as they should be? Can the company raise capital as it needs it? Is there some unexpected side effect that suddenly turns up? As an outside investor, you are always at a disadvantage, especially in a story stock whose story hasn't really started yet that can always take an unexpected turn in an unforeseen direction. You can't possible know as much as the insiders or the hedge funds that ignore the rules in pursuit of illegal insider information. That is why when a speculative stock like Cytori continues to enjoy buying interest from insiders, even as the stock makes a strong move upward, one must take notice. This continued insider buying effectively lowers the risk that anything beyond the limited view of the of the average investor could be amiss. In the last few weeks, even as CYTORI stock has rallyed from a low of $3.08 to $4.25, insider buying has continued buy one director:

• 11/18/2009 Paul Hawran-Director Bought 20,000 shares @$4.24
• 11/17/2009 Paul Hawran-Director Bought 5,000 shares @$3.98
• 11/12/2009 Paul Hawran-Director Bought 10,000 shares @$3.50

In my view this is a strong indication that the clinical trials are going well and that the inflection point discussed by Cytori management is for real. Do your own due diligence.