I know that you all must be bored with this, so it’ll be my last post on the subject (I think).
When someone wrote that a lot of insiders of Infinera (INFN) had sold between $18 and $19, and he had therefore sold out, or sold half his position, I gave a counter example of AMBA, where insiders had apparently been selling since $46, and any shares sold at $46 would be worth two and a half times as much now. I believe I also mentioned that if you looked at AMZN, for instance, insiders have been selling for hundreds of points.
I got the response from the poster that he had been talking about INFN, not AMBA, and he was worried about INFN (in spite of all the good news from and about the company), because of INFN insiders selling, and that what had happened at AMBA wasn’t relevant.
Well, in a market where the S&P keeps drifting very slowly down, INFN closed at $22.28 yesterday (up over 20% from $18.50, the midpoint of the $18-19 where they were selling). Insiders sell for all sorts of reasons, buying a house, sending their kids to college, buying a Tesla, just to diversify, because they consider their stock options as pay, who knows? I suggest you should base your decisions on what the company is doing, not on insider sales.
Insiders sell for all sorts of reasons, buying a house, sending their kids to college, buying a Tesla, just to diversify, because they consider their stock options as pay, who knows? I suggest you should base your decisions on what the company is doing, not on insider sales.
I agree Saul the only additional point though is that whilst insiders can sell for any number of reasons, they buy for only one reason. I pay attention to insider buys even if I ignore insider sells.
especially interesting because the financing of SCTY is the only questionable part about the company and he is CFO.
OTOH it is possible that this purchase was intended to send a message not because it was a good investment…
There is a big difference between buying stock with your own money and selling stock you got for nothing with options. If I was an insider I would look for diversification.
Surely the point is to be flexible. It is of course true that insiders sell substantial percentage holdings for all sorts of reasons. But it is rarely true that a group of insiders sell substantial percentage holdings all at the same time ‘for all sorts of reasons’. There is generally then just one reason and that reason is of interest.
It is of little interest when directors sell from their holdings after good results. The percentages will usually confirm no problem.
I recall a small company which satisfied my criteria which, with smallcaps, included significant director holdings. All seemed to be going well for a couple of years but then some sort of accounting question was raised in the market. I reviewed, and found to my horror that directors had been slashing their holdings and I now actually held more shares than the CFO! That was a close call. The company duly went bust.
It is also interesting when words and figures do not agree. The funniest question I ever heard at the AGM of a rather seriously indebted company was a nerdy figure in pebble glasses at the back who stood up asked ‘Mr. CEO, both you and Mr. CFO are really rich, I mean stupendously rich, and you both tell us how amazingly well the company is doing but I cannot help noticing that unlike all of us here, neither of you has any confidence at all in the company if your miniscule stock holdings are any guide.’. The audience tittered uneasily while the mouths of the CEO and CFO opened and shut like goldfish. Finally they said slightly too aggressively their personal affairs were a private matter at which the audience burst out laughing. The rest of the meeting did not last long.
And of course there is also ‘the curious incident of the dog in the night-time’ when directors should be buying but are not.
When groups of directors sell high percentages of their holdings, that is not to be ignored. They are rarely likely to be doing it because they think their company will fulfil Saul’s demanding growth criteria!
Hi Everyone, Tom Gardner was talking briefly about this at the Fool One event in Seattle earlier in the week. He said that TMF did some research on this subject a while back and they found that most insider trading had little correlation to subsequent stock price changes. In fact they only found two scenarios where it did have a strong correlation as follows;
When a stock is doing well and the CEO buys more. This correlated to strong price growth.
When a stock is doing poorly and price falling and the CEO sells. This is correlated to an even more serious decline.
I thought it was interesting so decided to pass it along to everyone.