There are thousands of reasons to sell, but only one reason to buy: You think a stock is going to go higher.

The people who are thought of as having the greatest insight into that upside potential — corporate insiders — are always doing both, buying and selling. So it can be instructive to see the ratio of what their Buys/Sells are like. Oftentimes, that can provide a small measure of insight into sentiment and potentially what management thinks the next 6-12 months miught hold. They aren’t infallible, but they do have access to better info than most investors do.

Consider the following observation, from Alan Newman (via Barron’s): 

"As Alan Newman notes in his always rewarding CrossCurrents commentary, in November, those worthies, as totted up by Thomson Financial, dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought. By comparison, in the 11 months beginning December ’05 and ending October ’06, the ratio of sellers to buyers among insiders averaged 10.7-to-1.

The early returns for December are even worse: in that month’s first two weeks insiders collectively sold 55 shares for every one they bought. As Alan comments, they were so bound and determined to take money off the table that they couldn’t even wait the few weeks until January to avoid the serious tax bite for what probably was a pretty lush year for them in ’06. "What," he asks, "does that tell you?" We’re terrific at answering rhetorical questions, and the answer to that one is "plenty."

So who’s buying those billions of dollars worth of shares the insiders are selling? Alan speculates that the latest Wall Street wonder, exchange-traded funds — or in the lexicon of the Street, ETFs (see Exchange-Traded Funds) — has been sucking up a lot of that stock gushing out of insider portfolios.

By his reckoning, through mid-December, last year’s net issuance of ETF shares weighed in at a massive $54 billion, extending a smashing seven-year growth that has averaged an awesome 41% annually and has lifted the total value of such shares to close to $400 billion. It’s critical to remember, Alan points out, that for an exchange-traded fund to issue shares it must first buy the underlying assets, primarily stocks. That demand all by itself, he reckons, was enough to keep the market rally of the past few months alive and well.

Not the least interesting thing about ETFs and their powerful impact on market prices is that they don’t trade on the basis of individual corporate prospects. Alan posits that more than half the price of many stocks is now dependent on "index or sector sponsorship, the obvious result of a market that has been increasingly sectored to death and indexed beyond any efficiency" imagined by academics. For ETFs, in other words, valuations don’t matter.

Which is the dangerous message he gets from the fact that the top 10 constituents of the most popular ETF, the Nasdaq 100 Trust (QQQQ), which trades a formidable $4.7 billion a day, sport a P/E north of 33 and are selling at over six times sales.

Unless we’re willing to say history and, for that matter, logic are bunk, it’s plain as the nose on your face that valuations do matter. That’s what investors should have learned from their sorry experience in 2000, reflects Alan, and what they very well may learn again the hard way when this market turns tail."

That’s fascinating stuff. Its hardly a precise timing mechanism, but it does point up an interesting factor: Insiders have been taking advantage of the stock run up from July to year’s end to sell into the strength.

I would be curious to see how this compares to other significant market periods. Is it determinative? Does it provide an early warning, or is it merely an interesting data point?

If any hung over revelers have an idea, please let us know . . .

Sore Winners

Category: Corporate Management, Investing, Markets, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

35 Responses to “Insider Selling”

  1. DavidB says:

    I just love crosscurrent’s style. It’s like being woken up at 3 am and being thrown into a pool of ice water. Nothing will wake you up quicker than that.

    According to these charts at Investopedia Barry, insiders tend to be late to the party in both buying and selling indicating they follow peaks and valleys in the market. They at investopedia see it different but the general trend looks to me like selling and buying peaks after the market tops and bottoms. Following them means you probably would have missed the absolute top and bottom but it could mean that you would have caught the change in the trend. I’d think there were more sure ways to read trend changes than that though

  2. To break it down further, different sectors (and even within those, different companies) have better and worse reps for timing.

    I first started following insider sales data thanks to the Oil industry — one family member was very senior at Amoco President of Nat Gas division, General Counsel) and another at Mobil. (Both pre-merger). It was brought to my attention back when Oil was $8 that insiders couldn’t buy shares fast enough.

    It turns out that senior management is very astute at forecasting upcoming oil demand. When t hey are buyers, you sure as hell want to be a buyer. . .

  3. Jim M says:

    Barry, I can’t believe you were up posting at 6-something a.m. Very informative, thanks. Happy New Year.


    BR: Nahhh, I exceprted that Saturday morning and set it to launch today on the assumption I would be deep asleep . . .

  4. DavidB says:

    I would tend to agree with you. It is usually very hard to take a generalization and apply it to a specific stock. One thing I’ve learned over the years is that just because the market is booming/busting does not mean my personal stocks are. Even during the depression there were stocks and companies making money and going counter trend. Old Joe Kennedy turned 4 million into 100 million just by buying at the bottom after the crash.

    I like approaching things from a more grassroots style(though I usually put the most importance on the industry) where I try to pick from the top performers in a specific industry and then go from there. Each one of those companies will have a unique character though there will be times they follow the market and times they are completely contrary. I prefer to find a stock and get to know it personally and intimately so I can know how it will react to market events. Like a craftsman, you need to know the strengths and limitations of your tools. If you can get to that point the generalizations shouldn’t affect you much

    It doesn’t mean I fall in love with my stocks. I just stalk them (:

  5. Big Al says:

    They may be anticipating problems when the new congress comes to town.

  6. David says:

    Barry, the insider part of the story was good but I found the more interesting aspect to be what was said about ETFs. I too have wondered how the explosion of these funds has affected equity markets. Since the early/mid ‘90s, a significant number of individual and institutional investors have jumped on the efficient buy-the-index bandwagon (first through indexed mutual funds and later ETFs). As ETF share and dollar trading volumes increased, the traders followed. It seems to me that the amount and turnover rate of funds sloshing around ETFs have removed whatever efficiency they may have possessed. One result is the point made by Mr. Newman – a stock’s price can reflect the effect of “mindless” index buying to an extent greater than actual corporate performance.

    Happy New Year!

  7. blam says:

    Over a long enough time period, the market looks efficient. In the short run, it doesn’t even look it.

    Buffet “In the short run the market is a voting machine; In the long run the market is a weighing machine”

    The following interview with Warren Buffett, taken from the November 1, 1974 issue of Forbes magazine, still makes for interesting and useful reading today.

    Swing, You Bum!

    Buffett is like the legendary guy who sold his stocks in 1928 and went fishing until 1933. That guy probably doesn’t exist. The stock market is habit-forming: You can always persuade yourself that there are bargains around. Even in 1929. Or 1970. But Buffett did kick the habit. He did “go fishing” from 1969 to 1974. If he had stuck around, he concedes, he would have had mediocre results.

    “I call investing the greatest business in the world,” he says, “because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike o­n you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”

    But pity the pros at the investment institutions. They’re the victims of impossible “performance” measurements. Says Buffett, continuing his baseball imagery, “It’s like Babe Ruth at bat with 50,000 fans and the club owner yelling, ‘Swing, you bum!’ and some guy is trying to pitch him an intentional walk. They know if they don’t take a swing at the next pitch, the guy will say, ‘Turn in your uniform.’”

  8. winjr says:

    “As Alan Newman notes in his always rewarding CrossCurrents commentary, in November, those worthies, as totted up by Thomson Financial, dumped an astounding $16 billion worth of their stock.”

    About a month ago, a different data miner come up with different numbers — 8.4 billion in stock. However, the resulting sell/buy ratio, 63.18, it calculated as the highest since 1987.

    According to this data miner, the highest monthly gross amount of insider stock ever sold was 14 billion — in March, 2000.

  9. lurker says:

    I thought the LBO funds were taking all the shares out of the market and creating an “equity shortage”. Whenever I hear that blather it is like “it’s different this time” and I start getting nervous. Seems to be plenty of ETFs to go around so who needs the underlying shares. Insiders seem to be trying heroically to help out on the supply side so watch your back in 2007.

  10. From Roben Farzad’s Business Week blog

    According to the the CCH Washington Service Bureau, an SEC data miner, November saw US company executives offload $8.4 billion in stock and make just $133 million in purchases. The resulting sell-to-buy ratio of 63.18 has not been seen since January 1987, when the Dow Jones Industrial Average was wowing investors by breaking 2,000 for the first time (it’s now at 12,300). With the index up 15% this year, and the S&P 500 up 12% (having nearly doubled from its 2002 low), suits are using the chance to blow out of company stock. The most active offloading is happening at Microsoft (MSFT), Google (GOOG) and retailer Kohl’s (KSS). In all, insiders put in 6.34 sell orders for every buy in the two months leading up to Dec 1. And the headline $8.4 billion in sales represents the fifth highest sum since the halcyonic reign of Gordon Gekko 19 years ago. The highest: just under $14 billion in March 2000, when the S&P 500 and Nasdaq were enjoying their bubblicious all-time highs. They have yet to revisit those fateful peaks.

    With the US market up 10% in the final quarter of the year, executives are clearly using the opportunity to sell (a lot) into strength. Food for skeptical thought as you get ready to mail in and allocate your 2007 retirement contribution.

  11. GerryL says:

    It is an interesting point that the ETFs loading up for their initial offering creates a lot of demand. The ETF pipeline is supposed to be significant for 2007 so this situation could last for a while longer. The question that is hardest to answer in a situation like this is when will it slowdown and the market turns around. There were people who rightfully shorted the .coms in the late nineties but still got killed due to bad timing.

  12. Philippe says:

    By Daniel Hauck
    Dec. 6 (Bloomberg) — Stock sales by America’s corporate chieftains exceeded purchases last month by the widest margin since 1987

    “Gates sold the second-largest amount of any U.S. insider in August and ranked fourth in July, while Schmidt sold the second- most in October and was the fourth-highest in September. Kellogg’s selling in September was the second-largest.
    Still, the overall insider-selling figure last month was the fifth-highest since 1987. Selling peaked at $13.9 billion in March 2000, when the S&P 500 reached its all-time high. The index then fell 5.2 percent in the next two months. ”
    According to these comments and statistics it seems that insiders are not so clumsy when it comes to protect their interest.

    There is a caveat when rushing to conclusion:

    1/The “creative accounting” in stocks options which may have prompted “fire sales” of stocks option, they are still one thousand and more companies which remain to be investigated.

    2/ The uptrend of the stocks markets worlwide have been helped as well by the shrinking of stocks supply, as companies are said to have heavily purchased their own shares and many against borrowings.
    As money supply is becoming tight and all cannot borrow yen or swiss francs to be swaped against dollars, they may as well sell these non strategic shares to obtain liquidity. This may well drive insiders to precaution sales.
    Many people have said “all the ends are not the same” but I tend to think that they all have the same flavour.

  13. Robert Coté says:

    Insider buy/sell ratios are biased. Much of the “sells” were never intended to be ownership but merely compensation. No more a vote of confidence than us regular joes cashing our paycheck. That’s why you see so many sell orders with tiny gains/losses, they weren’t insiders trading on expertise just insiders trying to grab a few extra cookies.

  14. Lauriston says:


    Ever thought what would happen if those insiders did NOT sell? The stocks would be worth even much much higher than they are today, and the rest of us would find it almost impossible to buy. When insiders sell, remember that at that very instant there is someone else buying from them!

    Thanks anyway for your infomative posts/blog!

  15. My1ambition says:

    January to October 1987 – 9 months.
    That was nine months of executives sitting there scratching their heads of whether or not they made the right decision in selling.

    A side point is that although the market is in a bull market, we are currently – unlike in 87 – in a secular bear market (all things considered).


    Therefore, it stands to reason, that those who are far better informed as it relates to earnings and margins are selling as opposed to those who are more on the momentum side of the equation. The buyers are more aggressive than the sellers not necessarily better informed.

    If you combine this into the equation along with all the other factors that have been discussed, it makes for a very gloomy prognosis as it relates to stock market valuations.

    Happy New Year,


  17. BDG123 says:

    BOOYAH! Happy new year. Well, I think CrossCurrents is full of it. Specifically full of the truth. Most CEOs aren’t very good CEOs but what they are extremely good at is protecting their own wealth. Similar to the crowd on Wall Street. Not very good at guiding the public but very good at protecting their own wealth. (Present company excluded along with some other standout exceptions.) Case in point is Robert “I cannot give a straight answer in an earnings conference call nor can I tell the truth when I pose for CNBC” Toll.

    Your energy buddies have been selling at the highest rate on record. Er, they were before oil dumped. I guess they don’t know what they are doing either.

  18. david foster says:

    Insider selling by outside directors may be a particularly interesting metric–executive usually have a lot of stock in the company and have legitimate needs for diversification, whereas grants to directors are much more modest, and also directors tend to have a lot of $ from their other activities.

  19. brion says:

    Barry, you should probably hook up those pessimistic worthies with the testiest trolls on your spam list….
    They probably deserve each other…

  20. brion says:

    Hey Blam, another analogy for the “pros at the investment institutions” could be…. “Babe Ruth goes into the stands grabs a fan, then stands behind him at the plate yelling ‘Swing, you bum! That’s a GREAT pitch!’ and some guy is trying to pitch him a beanball…. yes?

  21. ~ Nona says:

    “It doesn’t mean I fall in love with my stocks. I just stalk them (: ”

    Very good, DavidB! I intend to “borrow” this line sometime.

    Also, if I recall correctly, Michael Burke (Investors Intelligence) said that insider buying and selling tends to be not so much predictive but a (very) early indicator. Also, as already noted by others, there are many reasons to sell that may or may not have to do with an insider’s view of his or her company’s prospects.

    Even so, if after reviewing all my metrics when I’m “stalking” a stock, I remain on the sidelines if I notice a heavy insider selling. Natural caution, I suppose.

  22. DavidB says:

    One thing that excerpt does not deal with is where the ETFs are getting the money from. It is fine and dandy to deal with one side of the equation and say that ETFs are sopping up all those extra shares but they need to be funded too. As far as I understand they haven’t (yet) been given a mandate by the fed to print money like their bankster neighbors so where is the money coming from?

    If it is coming from mutual funds then it is a net wash and actually more money should be going into the hands of investors in the from of lower fees so that is actually a good thing. Maybe the money is coming from pension funds. Buying these ETFs could thus make them more efficient which hopefully again saves investors money.

    To say that ETFs are flooding the market tends to be dishonest until you can show that the money is not coming from other parts of the market and moving into a more efficient vehicle which is why ETFs were created in the first place

  23. toon says:

    I have been following insiders for years. Their activities never let you see market top but maybe useful in identifying individual stock trading opportunities. Check out

  24. anon says:

    Well, even if stocks do continue going up, at least I have the consolation that now I’m in good company. =)

  25. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  26. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  27. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  28. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  29. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  30. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  31. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  32. tj & the bear says:

    …dumped an astounding $16 billion worth of their stock, or nearly 35 times as much as they bought.

    That’s a screaming DEFCON 1 signal for Wall Street. Not that they’re listening…

  33. My1ambition says:

    Checked out Tim’s (Mess that Greenspan Made) predictions for 2007?

    He was right on for 2006 (says he) and claims no major Stock Market decline for the year ahead. I think he may be right. This may take a while. Inflation, “Could you take me higher”!

  34. mentalmodel says:

    There’s a ton of academic lit on insider transactions. If I remember correctly, they time buys well, but sell early. I’ll have to try to dig up a link.

    There has been a lot of insider buying in Canadian income trusts lately.

  35. Ravi says:

    Check this link from IBD..How insider selling happened before mini crash in home stocks..