Sharper Image's recent run-up shows investors aren't too sharp

Shares of Sharper Image Corporation (NASDAQ: SHRP) soared 45.5% yesterday. Did the company report an amazing quarter? Nope. Did it receive a buyout offer? Nah. So what drove it up? 6 executives bought a total of $400,000 worth of company stock. This was seen as a vote of confidence after the company's stock price has spent the past few years tanking on declining sales, huge losses, and a massive class-action lawsuit brought by consumers who purchase the Ionic Breeze.

BusinessWeek takes an excellent look at just how much uncertainty there is surrounding the company.

But back to yesterday's big gains: They added about $13 million to the company's market cap -- an amazing return on a total of $400,000 worth of buys by insiders -- a "creation of value" equaling a return of about 3,200%. Warren Buffett, eat your heart out!

Folks, here's the thing: Insider trading is illegal. If you think that this "vote of confidence" is indicative of anything material, then you just bought stock in a company where 6 executives, including the Chairman and the CEO, should be under SEC investigation.

And besides, who wouldn't buy stock when the act of buying would drive up the share price 45%?

It's entirely possible that Sharper Image is a good investment. But a few executives buying an average of less than $70,000 worth of stock each isn't any reason to think that.