Insider Selling Reaches Record as Buying Declines

By Marion Gammill Bloomberg News | THE JOURNAL RECORD, January 14, 1998 | Go to article overview

Insider Selling Reaches Record as Buying Declines


Marion Gammill Bloomberg News, THE JOURNAL RECORD


NEW YORK -- Last year was a great time for U.S. executives and directors to pick up some extra cash.

Inside sellers sold a record $27.1 billion of stock in the companies they run, up 7.8 percent from 1996, with Microsoft and drug-store chain CVS at the top of the heap. Meanwhile, insider buying fell 7.9 percent to $2.08 billion, with executives at insurer Conseco and cable-television company Tele-Communications spending the most, according to Washington Service, which tracks insider transactions.

The rise in selling and the drop in buying was an unusually good indicator of where the market was headed most of last year. In fact, the increase in selling was greatest after mid-year, suggesting that the market would rise little and perhaps fall, which it did in October. "Insiders did a very good job of buying at the lows in anticipation of a rally and selling at the top," said George Shirk, an analyst at The Insiders newsletter. That's typically not the case, he said, adding that "insiders are not known historically for great timing prowess." Analysts and investors draw sharp distinctions between selling and buying as good predictors of where shares are headed. Insiders sell for any number of reasons: investment diversification, buying a new house, putting a kid through college and sometimes because they believe the stock is at a peak. "It's natural for them to want to take some cash off the table," said Neil Hokanson, president of Hokanson Capital Management. Insider buying is seen as a stronger signal for a simple reason: Out of all the potential places to invest, the insiders picked their own company. Of course, heavy selling doesn't necessarily mean a stock is headed for a fall. Microsoft insiders dominated selling, led by company co-founder and Director Paul Allen, who has investments in sports teams and several companies, including Hollywood movie studio Dreamworks. He sold $1.41 billion in stock. Microsoft Chairman and Chief Executive Bill Gates was the No. 2 seller, collecting $1.03 billion. Insiders at the Redmond, Wash., company sold $2.56 billion in stock, almost three times as much as 1996's insider sales of $874 million. The selling was hardly a prelude to a plunge: Microsoft stock rose 56 percent in 1997. Like many high-technology companies, the software maker uses stock options rather than big cash salaries to compensate many employees. …

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