Source: Investech Research

 

The chart above comes from my favorite market historian, Jim Stack of Investech. Jim notes that Insider Sells have never been a reliable signal — it typically means the market has just rallied a bit and the insiders are looking to lock in some free money (also known as stock option cash outs).

Here is some more history of Insider Buys & Sells from Stack:

• In late 1982, as the DJIA approached 1050 –a level that had proven a barrier for 17 years– Insider Selling reached its highest (supposedly most bearish) extreme in almost a decade.

• Ironically, by the summer of 1987 corporate insiders had turned into aggressive buyers of their own stock. In fact, Insider Buying reached a record (supposedly
most bullish) level in October 1987… just one week before the 1987 Crash.

• In 1991 Insider Selling spiked as the stock market roared out of the 1990 recession and corporate earnings languished. Everyone was convinced that stocks had disconnected from reality and the insiders were right. Wrong again!That was only the first year
of a 9-year bull market run that would produce the longest period without a 10% correction.

• By May 1999 Insider Buying hit an 8-year high as corporate insiders had again become avid fans of their own stock – at the worst possible time… right before the peak of the dot-com bubble.

In other words, corporate insiders are just as dumb as the rest of you Humans!

(I mean other than that whole transferring wealth from corporate owners to themselves and convincing the eejit shareholder owners its actually good for them! Hahaha that’s hilarious!)

Category: Corporate Management, Markets, Psychology, Technical Analysis

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.

6 Responses to “Is Insider Selling A Concern? (No)”

  1. [...] Is insider selling an issue?  (Big Picture) [...]

  2. AHodge says:

    agree
    even individual company insider selling should do no more than raise curiousity
    ton of other reasons/ options grant mature/ general market thot high.
    so the total mumber is completely useless as indicator
    less it gets to the level of really adding to supply
    most of the sales were related to the company buying the stock to pay for it
    also a joke.
    company does buyback, woo hoo
    gives execs options or other stock comp worth most of that–not so good
    execs later cash it in–realized not so good

  3. eephus101 says:

    Hey Barry,

    While I agree with you as a whole, if you filter by type of insider, insider transactions become more meaningful…if CEOs and CFOs are buying in size, it means a lot more than when insiders as a whole are trading..the director of HR has about as much of a clue as a fire hydrant…and sells occur for many reasons..diversification and as you said profit taking chief among them.
    But the higher up the totem pole you go, the more informative are the trades, and in my view the signal is much stronger with buys than sells. Plenty of noise on the sells!

  4. farmera1 says:

    I was always amazed that upper management in the major corporation I worked for openly said their primary job (aka number one priority) was to manage stock prices. This laser like focus on stock price coincidentally helped them (upper management) maximize their income. What this meant in practice was managed earnings, things like stuffing the pipe line when sales were bad, spending expense money like crazy (to quote one of my peers in Middle Management get your buckets money is falling from the sky as it often did near quarters end) and delaying billings etc All done to manage short term profits. Other nice things like product value, customers, employees, quality etc or anything beyond the current quarters report were lower down on the priority list. Just manage those earnings and hence stock prices. This very short term mind set often led to really bad decisions and wasted money. Not to worry, I worked in a business with very high profit margins and this approach was used for decades. Been out of the business for over a decade so can’t comment on recent practices.

  5. Angryman1 says:

    Right, insider buying is when you should be concerned.

  6. [...] Source: Investech Research with a h/t to @ritholtz who posted it earlier today in his post: “Is Insider Selling A Concern? (No)“ [...]