To some, the buying and selling of a company’s stock by corporate officers and directors can be an indicator of Wall Street sentiment.
In July 2020, the ratio of companies with executive buying compared with executive selling touched 0.27 – the lowest level in nearly 20 years.1
By contrast, the ratio set an 11-year high of 1.75 in March 2020.1
Corporate officers and directors are referred to as "insiders," so you'll often see this reported as "insider trading" by the financial press. But it's critical to know nothing is wrong or illegal with this type of buying and selling.
“Insider” buying can indicate executives are confident in their company’s outlook and believe purchasing stock may be a sound investment decision.2
"Insider" selling, on the other hand, can indicate executives want to pursue other opportunities and are choosing to sell some or all of their company stock. Keep in mind that executives have many restrictions on when they can sell or buy shares, including the time before and after a quarterly report, for example.2
To add a little perspective, you can expect more executives to be sellers than buyers over the long term. Executives are often rewarded company stock as part of their overall compensation, so selling shares allows them to realize a portion of their total pay package.
Insider trading activity is one of many indicators that we watch to get a perspective on the financial markets. We know that the trend can offer some insight but also has limitations. If you see any indicator that piques your interest, give us a call. We'd welcome the chance to hear your perspective.
Tim Golas - Spurstone Partner
1. CNBC.com, July 24, 2020
2. Investing involves risk, and the return and principal value of investments will fluctuate as market conditions change. Investment opportunities should take into consideration your goals, time horizon, and risk tolerance. When sold, investments may be worth more or less than their original cost. Past performance does not guarantee future results.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.
Keep an Eye on Buying & Selling by Corporate Executives
November 08, 2021