As execs dump stock, is it time to sell?

While shares have soared, top executives and other insiders appear to have turned bearish.

By The Fiscal Times Mar 28, 2012 3:30PM

By Yuval Rosenberg

As the stock market rally heads toward its sixth month, corporate executives are looking to cash in.

 

Nike (NKE) Chief Financial Officer Donald Blair sold 11,000 shares of his stock in the company – more than $1.2 million worth – earlier this month, according to SEC filings. Michael Kors, the fashion designer and chief creative officer of Michael Kors Holdings (KORS), will unload nearly 3 million shares of his company’s stock, which has almost doubled since its first day of trading in December. The planned sale represents more than 18 percent of his current stake. And Mark Pincus, the CEO of Zynga (ZNGA), plans on selling more than $200 million worth of his stock in a secondary offering of shares in the videogame-maker, which also went public in December.

Across corporate America, as stocks have soared – the S&P 500 is up nearly 30 percent from its October 03, 2011 low, while the Dow Jones industrial average has climbed nearly 25 percent over that time – some top executives and other insiders have turned bearish. Insiders have sold $4.7 billion worth of stock so far this month, putting March on pace for the highest total since last May. And the ratio of selling to buying reached 20.8, the most bearish it’s been since early last year, according to TrimTabs Investment Research, which tracks insider transactions. “What we’ve seen,” says David Coleman, editor of Vickers Weekly Insider Report published by Argus Research, “are levels of sales relative to purchases that we have not seen since about February 2011.”

The increased selling activity fits with previous market cycles. “Historically, what has always happened is as stock prices go up, at some point company buying turns into selling,” says Charles Biderman, CEO of TrimTabs. “It looks like we’re in that price range in the market.” The ramped up selling comes as companies have often been using their built-up cash to buy shares or announce future buyback programs in an attempt to reward shareholders and entice new investors.

“While corporate insiders are committing plenty of corporate money to repurchase shares, they are massive net sellers with their own money,” Biderman and David Santschi of TrimTabs wrote in a report this week. “As Wall Street strategists are almost universally urging investors to load up on stocks, insiders are doing the opposite.”

Insider selling isn’t the only sign companies think stock prices are high. They have also pulled back on using cash in takeover deals, preferring to use stock instead, Biderman says. New cash takeovers have totaled $17 billion this year, the slowest pace since 2003, according to TrimTabs. And companies in the S&P 500 slowed the rate of share buybacks by nearly 23 percent from the third quarter to the fourth quarter of last year, according to analyst Howard Silverman of Standard & Poor’s. That slowdown has continued in recent weeks, despite a high-profile announcement from Apple (AAPL). Combined with the faster pace at which corporate insiders are selling, that’s a series of bearish signals, Biderman says – “something that happens in the area of tops.”

So should regular investors be paying heed to insider activity and pulling money out of the market too? After all, the insiders are the smart money. “In every market, the house has an advantage because they know more than the players,” Biderman says. “Who knows more about what’s going on, them or you?”

The problem is that insiders aren’t always easy to read correctly. “Insider trading is a signal, but it’s a noisy signal,” says Nejat Seyhun, a professor of finance and business administration at the University of Michigan and the author of “Investment Intelligence from Insider Trading.” For one thing, sales by corporate executives aren’t as telling as their purchases. They might be reducing their holdings for reasons that have little to do with the company – to raise some cash for personal financial reasons, for example, or to diversify their portfolios. Or they might just be taking some profits. “Increasing insider sales coupled with increasing stocks prices is not as worrisome as increasing insider sales while prices are going down,” says Seyhun.

And it’s not unusual for insiders to sell more than they buy. “Since corporate insiders typically receive stock as part of their compensation, it is normal for insiders to sell about 2 shares on the open market for every share they purchase outright,” mutual fund manager John Hussman wrote in a market commentary earlier this month.

This time, though, the numbers could suggest that bulls are due for a breather, especially because insiders have also been trading more actively over the last two months than they had been, on average, over the last five years, according to Coleman of the Vickers Weekly Insiders Report.

Biderman and others say it may be too soon to trade on the trend. “It’s only a few weeks that we’ve seen this heavy selling,” Biderman says. “If it stops and reverses, then this is just a pause. If it continues then this is something to worry about.” But at the very least, it’s a trend worth watching. “We’ve had bearish insider sentiment and high levels of insider participation for two consecutive months now,” Coleman says. “When you have a combination of those two factors, along with the simple fact that the markets have been rallying, if nothing else it’s a cautionary flag to investors.”

Related


22Comments
Mar 28, 2012 7:28PM
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The big dogs are shaking the trees again with the help of financial writers so that the peons will

sell out of fear and they can then swoop in and by shares at the lower prices.  Just ask Mr.Buffet.

He wants prices to go down so he can buy more.  That's how the game is won!

Mar 28, 2012 4:37PM
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our overlords are selling.theyre the jackasses that gave us free trade and job exporting.theyre the ones that own our government and are responsible for the push to create a one world government.they know things you dont.better sell

Mar 28, 2012 6:22PM
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Well, no surprise the CEO of Zynga is selling his stocks, might as well make his money when he can because people are going to start getting tired of playing farmville eventually. 
Mar 28, 2012 7:02PM
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"The increased selling activity fits with previous market cycles. "

 

Then your article is nothing but paranoid gibberish.

Mar 28, 2012 4:02PM
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Insider trading?  Stock manipulation?  Where is the SEC and Justice Department with enforcement?
Mar 28, 2012 10:48PM
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Tim Cook – Apple CEO

 stock prices ranging from $596.05-606.80 on 3/24/2012.

Total value: $119,715,170...200,0​00 SHARES

Philip Schiller – Senior VP of...

Kind of ironic that Apple / Mac, the "artists" and typically liberals computer choice has execs worth hundreds of millions, while their nonunion Chinese slave labor force works for the fair, livable wage of $0.25 hr.
Mar 28, 2012 6:57PM
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April 15 is coming.  They need money to pay their taxes.

 

I don't think we're all in Starnsville just yet.     

 

 

Mar 28, 2012 6:14PM
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Whatever happened to, "Not trying to time the market", and getting the "supposed" 8 to 10% return over the longhaul?  Maybe you're over-thinking it, maybe not.  Gonna grin and bear it, and not keep on with the endless commissions.
Mar 28, 2012 7:37PM
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Stocks have went nowhere in years and it is time to unload and look at Wall Street in the rear view mirror. All that investors have been doing for decades is trying to recover losses which Wall street claims are gains. The party is over for Wall Street and investors are putting money in different places other than stocks.
Mar 28, 2012 6:24PM
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DEXTERGREEN

 

Here is some info on Apple you might find interesting.

 

Apple continues to explode on the stock market, retaining its rank as the world’s most valuable company — beating out oil giant Exxon. Apple’s market cap is currently sitting at $572 billion, which is 20 points more than Google and Microsoft’s combined.

CEO Tim Cook cashed out a total of $130 million during the month of March, after gaining $11 million from selling shares earlier this month. Not bad, on top of his yearly salary.

Here’s what the executives cashed in:

Tim Cook – Apple CEO

 stock prices ranging from $596.05-606.80 on 3/24/2012.

Total value: $119,715,170...200,000 SHARES

Philip Schiller – Senior VP of Worldwide Marketing

 stock prices ranging from $602.30-603.05 on 3/24/2012.

Total value: $38,661,014....64,151 SHARES

Peter Openheimer – Senior VP and CFO

 stock prices ranging from $596.05-599.33 on 3/24/2012.

Total value: $89,624,444...150,000 SHARES

Robert Mansfield – Senior VP Hardware Engineering

 at $596.05 on 3/24/2012. Awarded 122,000 shares of restricted stock.

Total value: $33,388,336...56,016SHARES

Scott Forstall – Senior VP iOS Software

 at $596.05 on 3/24/2011. Awarded 122,000 shares of restricted stock.

Total value: $33,288,796...55,849 SHARES

Total dollar amount combined: $314,677,763.28

source. CULT OF MAC

Mar 28, 2012 10:03PM
Mar 28, 2012 10:52PM
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With the deficit at $6 trillion

1.6ishT deficit and closer to 16T debt...

Mar 28, 2012 4:11PM
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This is normally when insiders readjust their portfolios. it happens every year. I would not read too much into this.
Mar 28, 2012 4:22PM
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How is executives' selling insider trading?  It is public knowledge when a corporate officer sells or buys stock of his company.  And if a corporate officer buys enough shares to make him a 10% owner, he has to file a form with the IRS or the SEC, also public knowledge.  No one has reported any Apple officers selling their shares recently; at least as far as I know, and the stock is up again on a down day.
Mar 29, 2012 12:05AM
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A sigh of a market top? How can that be? The mainsteam media is saying the economy has been fixed, the green economy will soon blossom,  and the weak field on the republican side makes four more  years a shoo-in for the president.

They wouldn't lie to us, would they?

I love being contrarian.

 

Mar 28, 2012 7:39PM
Mar 28, 2012 5:39PM
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Just got home, kicked my steel toed boots off, threw the old lunch box in the sink, poured myself a brew and then bam o.  The big execs are at it again.  Selling all those collected shares!

Cash them in, it's commodities they are after now! It's all the trendy thing.

Mar 28, 2012 4:40PM
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The smart money have left the company.  The party is over.  It feels like 2008 all over again.  Smile 
Mar 28, 2012 10:25PM
Mar 28, 2012 8:52PM
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Pure Rhetoric to create panic in the market to instigate a sell off. Markets up 25% YTD, yes execs and other "big players" will take the profits and keep them liquid until the market drops 30% or more then swoop in and go "bargain shopping".  Look at the graphs of most stocks just in the past 6 months. Choose to sell and profit from healthy returns or "hold" and anticipate the market still has upside potential.

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