Amkor is on the Downside but Insiders Keep Buying

Amkor Technology (AMKR), a cyclical semiconductor packaging and testing company, is on the downside of its current price cycle that started in September 2002. But four Amkor board of directors bought over 350,000 shares between April 30, 2004 and May 19, 2004. They paid between $8 and $9.69 per share. As of July 2, 2004 Amkor closed at $5.88 Had the directors observed the rule of not buying on the downside, they would not have suffered significant paper losses in just a few months.

The daily price chart of the current price cycle shows the price peak in late 2003 and and the subsequent downside. Amkor reported lower than expected earnings in April 2004 and the stock tumbled 40 percent. The directors started to buy on April 30, 2004. Then on July 1, 2004 Amkor warned about future earnings and the stock dropped 30 percent.

The CTM percent returns chart shows the widening area of losing trades (red) in the right front of the chart. As selling prices fell, more trades became losers so the red area along the sell axis became larger. Most returns since April are in the red area.

Musings

One has to wonder what intelligent people like the Amkor directors were thinking when they bought large quantities of Amkor stock on the downside. Perhaps they were too close to the company to realize that buying on the downside is a losing game no matter what stock you are buying. Albeit Amkor is a well-managed company with good long-term businesses but it is a cyclical stock. So what's the point of trying to make money on the downside. Rather than buying as prices declined, the directors should have waited for the next upside before committing new money to the stock.