Corporate Insiders Selling Stock
Corporate insiders have been selling off loads of stock in their own companies among others. Insider selling has hit a pace last unseen since Summer 2007, right before stocks began their freefall.
Stacking Up The Numbers
In August, insiders were selling 31 times more stock than they were buying, a huge shift from the post-crash recovery period that started in March. Through the first 5 months of the year, insiders were mostly buyers, with most of the volume coming in March when 1023 more insiders purchased stock than those that sold it. The tide is shifting however, with 348 more insiders selling in August than those buying.
Why Watch Insiders?
Insiders are extremely important to get a view about what people think about their own businesses but also the underlying economic conditions. Publicly traded companies in the United States do a significant amount of business, so much that one should expect that corporate leaders typically have a very good idea about the status of the economy and the opportunities for growth. You must also look at the data with a level head. Many believe that insiders are long term investors, when often this isn’t the case. As we see here, insiders were buying up shares like crazy in March but are selling off today. Many insiders, having a good understanding of their own business, can make huge amounts of money playing the short term ebbs and flows of a business and the economy.
Insiders Believe We’re Priced Too High
I’m never much to take what everyone says and accept it as the truth, however, with the insiders being so right in March, I wonder if again they’ll prove their investing prowess. The S&P500 and many other indices are up nearly 50% from March, a spectacular rally, but the fundamentals aren’t lining up just yet.
We won’t know for many weeks or even months if the insiders get this one right, or if these recent statistics even play any importance. This could just be some normal profit taking, or it could be a large-scale exodus hoping to get out of the markets with what they’ve got.
I am no longer in the camp that believes following insider dealing of this sort. I have long thought that insiders will always have the best idea of the companies they operate, and using pure logic, the argument is sound.
Because of recent (and interesting) insider trading activity, I decided to research into the returns following an insider. I admit I only looked at 10 insiders (insiders that are widely considered by the mkt to be good indicators, but found these investors to be not as good as the mkt anticipated.
I looked at the return after EVERY trade +7 days, +15days, +30days, +90days and +180days and found that not one investor managed to get a +0% average return on any timescale..
Maybe i just haven’t found the right ones…
If anyone can suggest an insider, will be more than happy to look up their returns
Depending upon when they picked up the shares, it is a smart move for them to do. However, I do believe that most of the selling is due to weariness about the markets short-medium term outlook. This selling may be an early warning sign of the next leg down or retracement, as I do not see this being a V recovery, more like a sloppy W.
Insider selling is a strong indicator in my mind. I don’t believe too many insiders see this economy improving much for the next year or two. Rather, we may be bumping along the bottom for some time now.