I’ve started following a lot of the stocks discussed on this board the past few months and am quite intrigued by a lot of them due to the outstanding growth. However, something that I just can’t seem to reconcile is that fact that so many of these SAAS stocks have huge amounts of insider selling month after month. I understand that there may be any number of reasons for this, but if these officers and directors really thought their company’s shares were going to be worth substantially more in the future why would they be selling them so consistently? I am by no means an expert regarding this topic, so any clarification on this matter would be greatly appreciated.
“I’ve started following a lot of the stocks discussed on this board the past few months and am quite intrigued by a lot of them due to the outstanding growth. However, something that I just can’t seem to reconcile is that fact that so many of these SAAS stocks have huge amounts of insider selling month after month. I understand that there may be any number of reasons for this, but if these officers and directors really thought their company’s shares were going to be worth substantially more in the future why would they be selling them so consistently? I am by no means an expert regarding this topic, so any clarification on this matter would be greatly appreciated.”
The short version is that mid management and officers often get RSU grants often instead of options as a substantial share of total comp. It is treated an income at the time of vesting and sufficient shares are sold to cover income tax withholdings. Treatment of ISO and NQSO options can be treated similarly. In addition, upper management/c-suite often are often effectively blocked from selling at all times because their positions require insider information. As a result the sell in 105b-1 plans that sell shares in a predetermined intervals. A lot of their net worth is tied up in company stock. As someone here pointed out, Jensen Huang’s NVDA sales amounted to something like 0.2% of his total holdings.
It’s never a good sign, but most of the time it’s not a bad sign.
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Thank you for the response. That helps to clear things up a bit.
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ajm101
It’s never a good sign, but most of the time it’s not a bad sign.
I’ve tho’t before about the reasons your well stated explanation spells out, but still have the nagging question:
If the stock is expected to ‘go thru the roof’, wouldn’t it make more personal economic sense for the folks holding those shares to find money elsewhere, and hold on to their ‘sure thing’?
I’ve never been a high-value insider, but it’s the kind of decision that I would make, if shares I held were expected to ‘go thru the roof’…
Just an unwashed dirt farmer here…
However, something that I just can’t seem to reconcile is that fact that so many of these SAAS stocks have huge amounts of insider selling month after month. I understand that there may be any number of reasons for this, but if these officers and directors really thought their company’s shares were going to be worth substantially more in the future why would they be selling them so consistently?
They sell a little each month or quarter because they get more stock grants as a part other pay. If you look back at amazon’s insider trades you’ll see that when they were at $200, $300, $400, $500, they had about 50 insider sales a month, every month. They are at $1500 now. Insider sales didn’t predict anything. It’s how the company is doing that counts.
Saul
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If the stock is expected to ‘go thru the roof’, wouldn’t it make more personal economic sense for the folks holding those shares to find money elsewhere, and hold on to their ‘sure thing’?
On the other hand, if the stock you already have corresponds to a ridiculous amount of money, might one not want to either use some of the money for current pleasures or spread the bet in other spheres knowing that nothing is actually a sure thing?