Source: Investech Research with a h/t to @ritholtz who posted it earlier today in his post: “Is Insider Selling A Concern? (No)“
As you can see from the chart and linked post above, insider sales are not really as good as an indicator as most people are led to believe. Also, (importantly,) there is absolutely nothing wrong with them.
Of course there are many exceptions (such as excessive sales, especially during a time where execs are leading investors to believe things are fine but they really are not etc.) – but for the most part, enough of the “if the company is doing well, why are the insiders selling?” comments!
For close to a dozen years I’ve been professionally advising high net-worth individuals on how to invest their money. I have never not recommended an executive to diversify and sell as much of their company stock as they can.
It is typically the case that most of these executives have almost their entire human capital and almost all of their financial capital tied to this one company. I don’t care how good the company is doing or how much other money they have, that should not be the focus.
Human capital is the future earnings from one’s employment. Of course most executives at established companies can find other work if “shit hits the fan”, but currently almost all of their future compensation is expected to come from their current employer.
Most of these executives earn a high enough salary or have already sold enough stock to live a nice life style and most have other assets as well, so they do have other financial capital. But most of the focus on insider selling is typically on the huge sales – the millions, tens of millions, or even hundreds of millions of dollars. These executives typically don’t have other money like this sitting around in other stocks, real estate, cash etc. This is their “real” money and it’s all tied to one company’s stock price.
It would be irresponsible not to sell and diversify. (think Enron)
So if you’re bearish on $KORS or $CRM et al… say the company is overpriced, write about slowing growth, the GAAP vs non-GAAP numbers, or some accounting issues etc. I’m sure there are plenty of (valid) reasons to be short, but don’t blame Michael Kors or Marc Benioff for selling stock, I (and you) would have and should have done the same.
- MicroFundy
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Just because the market has not dropped does not mean the insiders are not getting out for a good reason.
When there companies are trading at 150 times earnings, they know it way over valued and sell. Who cares if it goes higher. An irrational market will not go on for ever. DOT COM bubble. 2008 Housing, Now in 2013 we see a Fed Bubble that will pop. How much debt does it take to fuel an economy?
You tag the article with CRM. They have lost money the last 7 quarters. The insiders have sold ever share they received over those 2 years. They have taken out millions and millions. While the shareholders are just told how spectacular, fabulous, incredible CRM is doing. The numbers tell a different story. People are currently paying 9 times revenue for CRM. No one can say this is a good investment. Stop comparing to Microsoft. Microsoft grew like made, and Microsoft MAKES money. It always has.
Should you watch insiders. Yep. They know the company better than anyone else. CRM insiders know the company will never grow into the $180 price it has today. Not in 10 years.
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