They’re at it again – the insiders, that is - selling their stock at a furious pace. That insiders are selling is not a new development – it’s been going on for quite some time now. What makes this story timely is that they are increasing their sales.
Market experts and armchair analysts follow insider activity very closely for several reasons. Insiders – people in senior management positions – know what’s going on at their companies better than anyone else does.
Lots of buying indicates they have confidence in a company and think the stock could move higher. However, lots of selling raises a red flag, as it suggests the company may be heading for rough seas and that its shares may decline. Many insiders are selling now, and as a group they have a very high batting average.
Consider this: Hundreds of insiders at many dozens of companies are unloading huge numbers of their shares. There have been only two other times in the recent past when insiders have been selling so heavily. One was in 1999-2000 and the other was in 2007-2008. The selling in 1999-2000 was followed by the terrible Dot-Com Crash, and the selling in 2007-2008 was followed by a global financial crisis. These declines were among the worst in market history.
Outpacing Last Year
By December 1, CEOs and other company insiders had already sold a record $69 billion of their stock. This number is up 30% from 2020, and is 79% more than the 10-year average according to InsiderScore.
And there’s a good chance insiders will continue to sell in December, because popular market averages are at or very near all-time highs and there’s a good chance they will take profits before the market sells off. Also, insiders (and others) often sell in December to raise money for anticipated taxes owed in April.
Movers And Shakers
The list of insiders that are selling includes some of Wall Street’s best-known movers and shakers. Elon Musk sold $10 billion of his Tesla stock in November, and according to published sources has continued selling in December; his brother, a Director at the company, also is selling.
Amazon’s Jeff Bezos sold nearly $10 billion of that stock. The Walton family, heirs to the Walmart fortune, sold $6.2 billion. Facebook’s Mark Zuckerberg unloaded $4.5 billion of his shares. Larry Page and Sergey Brin, co-founders of Google, each sold approximately $1.5 billion of their stock. The list of prominent sellers continues from there.
And it’s not just well-known executives heading for the exit. CEOs and other insiders sold a combined total of $15.9 billion worth or their stock in November – an all-time high. Separately, each of 48 senior executives sold more than $200 million in stock this year alone.
For every seller there is a buyer. Unfortunately, in this case the buying doesn’t offset concern about the selling.
Goldman Sachs has reported that companies have been buying huge amounts of the stock that the insiders are selling. In fact, it’s been estimated that 40% of the bull market is due solely to company’s buying the shares the insiders have been selling; this has not only been driving their own shares higher but, since this is happening so widely, it’s been pushing the overall market, too.
So why are so many insiders selling so much stock? Do they simply want to take profits off of the table?
If that’s the reason it certainly would be understandable. After all, stock valuations are very high, inflation is now at the highest rate in decades, and many regions around the country and the world are suffering from a spike in the virus.
But there may be an additional factor influencing their decision, one that the rest of us should keep in mind too - and that is the enormous amount of debt out there.
People have been taking on additional debt to buy all kinds of things, ranging from necessities and practical items like food and paying for medication, to going on luxurious cruises and purchasing expensive things like boats. They are running up massive debt in the process, and doing so at the same time that interest rates are rising. The combination could prove to be untenable to some.
It’s not just individuals who will be pressured by having to make higher payments on their debt; companies will be, too. Many are in the development stage and still not making profits; others have not yet gotten over the problems caused by the pandemic and lockdowns, or are trying to cope with supply shortages and higher prices.
The only reason they have been able to stay in business is because they borrowed money at low interest rates – but that’s changing now. The Bank of England has just raised rates, and the Fed said it would raise rates three times next year. Will these increases generate additional challenges for Wall Street?
Although not evident from the popular averages, “There’s already been a massive sell-off in everything related to momentum and growth, all the pandemic darlings, and a lot of the travel and leisure names,” Art Hogan, Chief Market Strategist at National Securities, told CNBC. In early December, almost half of the S&P 500 was in correction territory or worse, he added.
Maybe insiders are selling because they want to lock in profits. But there could be other reasons, too.
The world is changing and even the rules of investing may be changing. But when so many insiders are rushing to get out of stocks, those who ignore them do so at their own peril. Some things never change.
Sources: bloomberg.com; cnbc.com; epiceconomist.com; economiccollapseblog.com; yahoofinance.com; zerohedge.com
By Gerald Harris