Insiders Selling At A Furious Pace

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castlewp's picture
castlewp
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Insiders Selling At A Furious Pace

Maybe time to get out of the market if you are still in.

http://www.businessinsider.com/insider-selling-at-a-furious-pace-2009-5

Last week there was a report that corporate insiders were selling at a faster rate that at any time since October, 2007 -- right near the top of the market.

Well, the market's only raged higher since then and insider selling is only getting more intsense.

The Pragmatic Capitalist has aggregated recent insider transactions. As you can see from his data collected (unfortunately the tables won't fit here, do click over), insider sales dwarf insider buys both in frequency and in volume. Insiders are selling their stocks in multi-million dollar blocks, while the few buys are much smaller.

If nothing else, it means that a lot of executives probably saw the abyss (a violent drop from the ranks of the wealthy to poor) and want to de-risk to ensure that no matter what happens to their stock, they've taken some skin out of the game.

that1guy's picture
that1guy
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Re: Insiders Selling At A Furious Pace

This question may be silly, but when you say insider sales, does this refer to people that work for the companies? I ask, cause when I hear anyone refer to insider selling I think of the illigal actions that can get people put in prison (such as Martha Stewert).

 

SamLinder's picture
SamLinder
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Re: Insiders Selling At A Furious Pace
that1guy wrote:

This question may be silly, but when you say insider sales, does this refer to people that work for the companies? I ask, cause when I hear anyone refer to insider selling I think of the illigal actions that can get people put in prison (such as Martha Stewert).

It is perfectly legal for "insiders" to sell stock if it is done according to the rules. "Insiders" are usually highly placed executives who have knowledge of the status of the companies fortunes. If they sell before they publicly admit good or bad news (something that will drive the stock higher or lower), that is illegal. However, if they sell when nothing is going on, that's fine. Also, if they sell after the announcements are made, which allows the public the same knowledge, then it's also ok.

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that1guy
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Re: Insiders Selling At A Furious Pace

I see, so all this mass selling  with out news is legal. Interesting, cause if there is no info on their part, but they are selling, wouldn't that hint that they also know there is nothing supporting the run..........oh well, Im not in the stock market, so no worries here

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SamLinder
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Re: Insiders Selling At A Furious Pace
that1guy wrote:

I see, so all this mass selling  with out news is legal. Interesting, cause if there is no info on their part, but they are selling, wouldn't that hint that they also know there is nothing supporting the run..........oh well, Im not in the stock market, so no worries here

Let me clarify my earlier statement. When I said that selling before revelation of good/bad news is illegal, I meant just before the good/bad news is revealed (i.e. 2 weeks or 30 day window - I'm not sure of the time frame).

Insiders usually know which way the wind is blowing relative to their company finances. Thus, if they see rough waters ahead, they may well sell a lot of stock (that they have previously been awarded as options) to benefit from its current value. This means that they are losing confidence in their own company.

They may also sell if they are being financially squeezed for other reasons and need to cash in their stock to get money. If many top level executives in a company are selling, this does not bode well for the short term future of that company - sort of the rats deserting a sinking ship. Executives usually hold on to, or even buy, company stock if they believe it will retain its value, or even gain in value, down the road.

Thus, if you see a lot of insider selling in a company, it would be wise to avoid buying stock in that company!

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cmartenson
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Re: Insiders Selling At A Furious Pace

Insiders are selling?  Say it ain't so!

Well, if this guy's experience (recounted in Newsweek) is anything to judge by, perhaps there's a good reason for all the insider selling.

Recovery? What Recovery? Why entrepreneurs aren't so optimistic about the economy.

Don't tell me that the economy is getting better, or has even hit rock bottom. My faith in an imminent recovery deserted me on May 5, when one of our customers, Salyer American Foods, based in Monterey, Calif., suddenly fell into receivership. There had been little to no indication that the company was so close to financial ruin. As it turns out, the company's lenders say Salyer owes them over $34 million, a debt equal to almost half its sales. A company attorney told local media that tight credit markets and the economic recession had pushed Salyer over the edge. If the receiver doesn't find some way to revive the company's fortunes, our bag manufacturing company stands to lose nearly $1.5 million in revenue, about 2 percent of our $60 million in sales.

On the same day my customer fell into receivership, Fed chairman Ben Bernanke told a congressional committee that he believed the economy was in the process of bottoming out and "would turn up later this year." He's not alone in his optimism. Over the past two weeks or so, it has become a cottage industry among economists and the media to spot the first "green shoots" of a recovery. Certainly shoots there may be. The stock market has rebounded smartly over the past two months, as has consumer confidence. Pending home sales have ticked up, while unemployment claims are easing. And many economists insist a manufacturing revival is in the wings because inventories have fallen so low that restocking must begin soon.

But I haven't found many small-business owners ready to jump on the recovery bandwagon, and for good reason. We're still experiencing the "bottoming out" phase and worry that another bottom remains below this one. Call us pessimists, but we're not sure the green shoots aren't just weeds.

Who can blame us? Take the experience of a friend of mine, who runs a $6 million company that provides promotional material to businesses. His sales are down 20 percent compared with last year. Over dinner last week, he said he certainly wasn't shedding customers at the same pace he had been in the fall, but customers were still defecting. "I can't see any reason why they'd come back soon," he said. So he's getting ready for a second round of layoffs and plans to end spending on marketing until things look more promising.

He's not alone among my friends and colleagues in his sense that bad times may be here to stay. One friend just decided to abandon her two-year-old Web-based gift boutique thanks to declining sales. She has another friend whose promising e-business startup had its venture funding yanked when it failed to meet sales goals. "Two years ago they'd have been given time to work things out," she says. Instead they recently closed. Another friend of mine works for a commercial real-estate company that's instituting 10 percent wage cuts beginning in mid-May. "It's better than people losing their jobs," he said to me, "but I don't expect to be getting the money back any time soon." Given the growing worries about commercial real estate, he's probably right.

Even some companies that are supposed to be recession-resistant remain worried. I know the general manager of a small candy company, who says his sales haven't stopped sliding despite the belief that people supposedly eat more comfort food during bad economic times. He has cut back a shift and won't be rehiring soon. Representatives for a small local bank have told me that they haven't seen an uptick in business lending, and that they don't have businesses looking for money other than those they wouldn't lend to in the first place. And a long-time machine supplier of mine has had a completed bag-making machine on its floor since late 2008, when the customer decided not to go through with the purchase. Despite a steep discount, the company can't find a buyer.

Based on my company's experience, I don't necessarily see a positive side to low inventories. Over the past several months, we've seen lead times on orders fall at least 30 percent. Where our customers used to give us three to four weeks to fill an order, now they give us as little as two. Shorter lead times have followed the trend toward smaller orders. Where companies would once order 3 million bags and hold them on their floors for several weeks, now they're asking for only 1.5 million and reordering at the last possible moment. In most cases, it's not that their sales are falling, just that they're slashing order sizes and reducing lead times in order to avoid tying up capital in inventory. Since they're entering smaller orders more often, we're less likely to hold inventory as well. In my corner of the manufacturing sector, the revival that economists have been pointing to seems a long way off.

Now, I know businesspeople can be notoriously wrongheaded when it comes to spotting trends. Aren't the Big Three automakers at least partly responsible for their own demise because of their failure to anticipate the need for more fuel-efficient cars? I know I've almost blown the opportunity to capitalize on growth in the past by being too conservative about buying new equipment. In fact, I've angered customers by stretching out lead times rather than investing, because I've been worried that the sales growth isn't sustainable. Talk about a self-fulfilling prophecy. Even right now, when I can see that a judicious equipment purchase could propel our company forward, I worry about taking on more debt and hold back, even with one supplier offering terms that would give us a machine for a year without any payments.

 

 

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