Sell-Offs by CEOs - Good or Bad?
Insiders have greater and earlier access to information and news, which is why insider trades are closely watched. The following are some of the companies whose CEOs have cashed out their stocks this year $NVIDIA (NVDA.US)$ $AMC Entertainment (AMC.US)$ $Microsoft (MSFT.US)$ $Amazon (AMZN.US)$ $Tesla (TSLA.US)$ $Meta Platforms (FB.US)$ $Walmart (WMT.US)$ $Alphabet-C (GOOG.US)$ $Alphabet-A (GOOGL.US)$ $DBS Group Holdings (D05.SG)$ When CEOs sell their stock, is it a bad thing? The short answer is it depends.
CEOs get stock options as part of their remuneration package and it is reasonable for CEOs to cash out some of their holdings from time to time to fund their personal or investment needs. For instance, Bezos needed funds for his Bezos Earth Fund. In the US, the sale may be part of a predetermined plan under Rule 10b5-1 to avoid contravening insider trading laws. Despite this, some may argue that the CEO can influence the date of release of news that would be positive or negative for the stock, as could be seen in the speculations generated when the CEO of $Pfizer (PFE.US)$ sold $5.6 million of stock on the day of vaccine announcement.
On the other hand, significant sell-offs may indicate the stock is over-valued and/or an expectation that the stock price will become bearish. Even if it were not the case, the market may perceive it to be bad and start selling off in fear, setting off a price fall.
The factors I would consider when assessing whether a sell off is negative are:
1) The percentage of shares the CEO still owns after the sale. If the CEO still has many shares remaining, chances are he believes in the company‘s prospects and his interests are still closely aligned with the company‘s.
2) The fundamentals of the company. If the company is a market leader, I would not be too worried.
3) The greater operating environment (prospects of the economy and sector, signs of regulatory changes etc).
4) Any rumours. This is not dependable unfortunately as rumours can turn out to be false.
In conclusion, a sell off by the CEO may not be a signal to sell. One needs to consider a variety of factors.
1) The percentage of shares the CEO still owns after the sale. If the CEO still has many shares remaining, chances are he believes in the company‘s prospects and his interests are still closely aligned with the company‘s.
2) The fundamentals of the company. If the company is a market leader, I would not be too worried.
3) The greater operating environment (prospects of the economy and sector, signs of regulatory changes etc).
4) Any rumours. This is not dependable unfortunately as rumours can turn out to be false.
In conclusion, a sell off by the CEO may not be a signal to sell. One needs to consider a variety of factors.
Disclaimer: The above is my personal opinion. It is not financial advice or a recommendation to invest. Please consult a financial advisor before making any investment decision.
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Dadacai OP Christine Seah : Thanks for reading and commenting.![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")
103106779 : The Market are so red these Two days...
Casperwolf : the market is so red for the past week. especially crypto
Casperwolf : I wonder if the age of AMC is over for good now, or just a covid phase. there are so many streaming options now.
Dadacai OP Casperwolf : Streaming has long been a trend although nothing quite beats the experience of watching a tentpole on the big screen. The pandemic just accelerated it. The performance of AMC stock is not necessarily related to its business though as it’s a meme stock.
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