Spring Home-Selling Is So Good that the Tolls Are Selling Too

By Dr. Duru written for One-Twenty

April 12, 2009

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At the same time Robert Toll, CEO of Toll Brothers (TOL), was touting a promising start to 2009's spring home selling season, he and his brother Bruce were doing some selling of their own. From March 16 to April 8, 2009, the Toll brothers sold some $45M in company stock. Sure they still hold a combined $247M in company stock, but massive insider sales should always raise a red flag for investors. As I have mentioned before, the financial markets tend to pause whenever Robert Toll speaks about the health of the housing industry. In this case, the markets should slam on the brakes as Toll's money is speaking louder than words can.

These insider sales are even more remarkable compared to the near lack of any selling activity in the other major homebuilders. After doing a quick check, I can only find the insiders at The Ryland Group (RYL) with any significant sales this year. Note well that TOL's stock is holding up much better than the stocks of other homebuilders, essentially sitting in the middle of an 18-month trading range that is "only" at 4-5 year lows (see chart below). Most of the other majors have lost all their gains from the last bull market. So, the Tolls may have decided to stop waiting for a turn and to start selling while the getting is still good, such as it is. I am sure that if asked about these sales, a TOL spokesperson will provide the standard line about "asset diversification" or "regularly scheduled/pre-planned sales." But if the Tolls believed that a housing bottom is in sight, surely the prospect of doubling or tripling (or more?!) their money in short order would be worth the wait? We may never get a good answer but surely we have learned by now that when insiders are dumping boatloads of shares, we should let them go overboard...instead of leaping after them like so much dead fish.

In perhaps related news, AP reports that as many as 100,000 American homes may be threatened by faulty drywall imported from China at the height of the housing bubble. This news is sending regulators and the like scrambling given this issue could send many more homeowners over the edge to foreclosure and/or bankruptcy. In a worst case scenario, this problem could even cause a deeper freeze in new home sales in the southeastern regions most impacted by the reported toxic fumes released over time under humid conditions. I know when I bought my new house several years ago, I was quite dismayed to discover the shoddy work and cut corners in its construction (I should have listened to my realtor who TRIED to point me to resales - the "beta-tested" homes!). I can only cross my fingers that my own drywall does not contain this ticking time bomb.

TOL weekly chart
*Chart created using TeleChart:

Barron's commentator John Kimmelman talks in more detail about the TOL insider sales:

Be careful out there!

Full disclosure: long puts in XHB. For other disclaimers click here.

© DR. DURU®, 2009