Corporate Insiders Dumping Shares at Inordinate Rate

According to a piece available online at the TIME website, corporate insiders are overwhelmingly selling rather than buying shares in publicly listed companies.

Even as we’re told by economists and business-television talking heads that the worst is over and the economy is recovering, we find that many corporate insiders don’t share that sunny optimism.

From the TIME article:

The last time insider selling was as high as it is now was in the period from late 2006 to late 2007. It was right after that insider-selling surge that the stock market began its long painful decline, says Charles Biderman, CEO of TrimTabs, an independent institutional research firm.

Biderman believes that insider trades shoot higher when there’s a disconnect between broad market opinions and what business executives feel in their gut. “When [insiders think] things are going better than most people think, they buy stock,” he says. “When things are going worse than people think, they sell.”

Some of the phenomenon could be attributed to profit taking — the stock markets have been on a run since March — but the severe imbalance of sellers to buyers suggests a deeper disturbance.

Biderman has measured the ratio of insider selling to buying since 2004, and says historically the ratio is 7 to 1. (Insiders almost always sell more than they buy because they receive stock as part of their compensation.) Right now the ratio is 30, one of the highest he’s recorded. November 2007 is the last time the ratio even came close, at 24.

No industry breakdown was provided in the article, so we don’t know whether information-technology insiders are selling their shares to a greater or lesser degree than their counterparts in other industries.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s