A week or so ago, someone on this board posted his concerns about insider selling of INFN at $18 to $19, which (I think I remember), influenced him to sell his shares.
I pointed out that, on April 16, after a long and extensive debate (which they published), MF Supernova sold a third of their position in AMBA! Why? You’ll never guess! Mostly because the AMBA insiders had sold a lot of their shares. Really a lot, according to the worriers.
The price of AMBA on April 16, when Supernova sold, closed at $74.60. Most of the insiders sold for less. In fact, when I looked it up, they’ve been selling lots since $46 in December! Yesterday (about six or seven weeks later), it hit $91.80 !!! That was up roughly 100% from those insider sales in December, and up about 20% from when Supernova got scared and sold. The insiders would have doubled their money if they hadn’t sold. What does that tell you? Think about it for a second.
INFN stock doesn’t seem to be worried much about the insider selling either and has now moved up to $20.64. It’s too soon to tell where it’s going, but as of yet there’s no indication that the insider sales at $18 and $19 meant much.
I don’t give any guarantees, but insiders are usually better at running their companies than managing their stock market investments. I wouldn’t make any decisions based primarily on insider sales, without some confirmatory evidence. Just sayin…
Heavy insider buying is something else again. Much rarer, and much more indicative.
Insider selling, based on proprietary information is illegal. It’s one of the few securities violations for which an insider can really get in some trouble. If your sense is that management can not be trusted, then by all means get out of the stock post haste. If, OTH, you have no idea what is motivating some of the inside management to sell the stock of the company they manage, then maybe it’s best to ignore it.
There are hundreds of reasons to sell stock. Maybe some money was needed for personal reasons. Maybe the person decided they had too much of their portfolio tied up in one company. Maybe it was a “programmed” sale (what looks like “insider selling” is often planned program selling),maybe, maybe, maybe . . .
The way I deal with insider selling is to ignore it. I can’t remember a single time when this strategy has been detrimental. Not that every investment I’ve held has gone straight up after insider sales, but I’ve never seen a company I held just melt down after insider selling. Of course, it happens. There are sleazy managers, but I’d venture it’s really rare.
Supporting Saul’s argument, here’s another perspective:
Here’s one effect of Stock-based compensation via RSU’s, stock options or Employee Stock Purchase plans.
Imagine that 10-20% of your portfolio is in one stock, the company you work for.
Imagine a crash like 2007-2008 or even worse, 2000.
Or something unforeseen happens at the company you work for.
Even if the market is bullish about your company it just makes financial sense to diversify and not keep most of your eggs in one basket.
That’s why prudent insiders will intermittently sell to diversify irrespective of how bullish market is about their company.