Insider Selling at 10-Month High
U.S. executives are selling their companies’ shares at the fastest pace in 10 months, a development that some analysts say might foreshadow a market decline.
In the last eight weeks, executives, directors and big individual investors made 3.1 sales for each purchase, according to Vickers Weekly Insider Report. That’s the most selling activity by insiders since July 2002.
Among the leading sellers: Microsoft Corp. Chief Executive Steve Ballmer, AOL Time Warner Inc. director Ted Turner and Dell Computer Corp. Chairman Michael Dell.
“That is a little bit of a red flag,” said money manager Phil Larkins of Northern Trust Corp. “Insiders aren’t enthusiastic about where stocks are going over the next six to 12 months.”
The selling surge comes as the Standard & Poor’s 500 index has risen 12.5% this year and the tech-focused Nasdaq composite index is up 23.3%. Meanwhile, earnings growth among S&P; 500 companies is slowing to an average 5.8% this quarter.
The rise in selling is similar to a wave of sales a year ago, which preceded a market tumble.
In May 2002, there were four purchases for every sale by executives and directors, who are required to disclose the transactions to the Securities and Exchange Commission. That preceded a 27% drop in the Standard & Poor’s 500 over the following eight weeks.
Last week, there were 4.2 sales for every purchase, according to Vickers, which tracks SEC filings.
“Insider selling is increasing at a fairly unsettling pace,” said David Coleman, editor of Vickers. “Insiders know more about the stock than anyone else. Those who ignore insiders’ signals do so to their own detriment.”
But the May sales rise wasn’t completely unexpected, said Lon Gerber, Thomson Financial’s director of insider research.
Insiders who are restricted from selling around the April first-quarter earnings period have pent-up demand to do so in May. May has tended to have one of the highest monthly levels of insider sales in recent years, Gerber said.
Executives could have many reasons to sell shares: They may plan to buy a house, diversify their investments or believe that the stock may have reached a peak.
This year, selling has been heaviest among computer-related companies and software makers, analysts said, reflecting sellers’ desire to lock in profits even as demand among businesses remains sluggish.
Microsoft’s Ballmer sold 55.4 million shares for $1.34 billion, according to filings. It was his first sale in 12 years. Ballmer said he sold shares to diversify his investments and is “as committed to Microsoft as ever.”
Turner, AOL’s biggest individual shareholder, sold 60 million shares for $783.6 million. Turner said he sold to diversify his holdings and “remains supportive of management.”
Dell sold 10 million shares for $296.8 million. The executive sold to diversify his investments and “remains the largest shareholder in the company,” a spokesman said.
