Why Insiders Selling Their Stock Doesn’t Matter
Aug 25, 2017
I was asked this week by a client if I had any view on a CEO selling shares of his own stock. “No, I didn’t,” quite frankly, and I went on to explain why I don’t care for sales by company insiders. You shouldn’t either, and here’s why.
First, a definition. The SEC considers an “insider” who is a corporate director, officer or employee. Furthermore, if they share that information with a friend, family or business associate, they also become an insider.
When an insider sells stock on the open market, the media, press and most investors typically just look at the trade and ignore the characteristics. How often have you read that “Directors Recently Sold XXX (Amount) Shares at XXX (Price)”? Most investors will be put off the stock immediately. There is something about company insiders selling which appears negative. Why should you invest in something that the very people who run the company are bailing out of? If that’s the case, what is the reasoning behind not caring for sales?