WINDERMERE, Florida ( Stockpickr) -- Corporate insiders can sell stock for a various reasons that have nothing to do with a company's outlook: planned sales, portfolio diversification, to raise money to buy something else, due to the exercising of grants or warrants -- or just to simply lock in profits.
All of these reasons are valid, but that doesn't mean you should ignore an insider sale. I think it's best to consider where the stock is when a key insider is selling and how much of the insider's entire stake is being liquidated. Also, it's useful to consider where the market is when at the time of the sale. If insiders are selling in droves across the board after a big market advance, then it could be a serious red flag. Another red flag can be found when a number of key insiders are selling stock in a specific company.
Recently, corporate insiders have been selling stock at record levels, and there hasn't been much notable buying. Some of the companies that saw big insider selling these past few weeks were Microsoft (MSFT), Marriott International (MAR) and Allergan (AGN).
>>Also: 9 Insider Sales Raising EyebrowsThe selling at Microsoft was coming from the top two company executives: Bill Gates and Steve Ballmer. Both men quickly defended their actions at a recent shareholder meeting, saying that the selling was simply for tax planning, in the case of Ballmer, and to raise money for his charity, in the case of Gates. I will let you decide if their reasons for selling are legit. Again, consider some of the things I mentioned above when determining whether the sales should raise a red flag. I do understand the frustration of Microsoft shareholders with Bill Gates. Running a large charity organization as Gates is doing is a noble thing, but I guess my take is why not just remove yourself from the company instead of flooding the market with stock every time you need to embark on the next great cause. The recent insider selling has been occurring across the board in a number of different sectors, and it's happening right after the market has made a big advance off of the August lows. This doesn't mean that the market is going to drop like a stone from current levels, but it is a warning sign. Market players should continue to monitor insider activity going forward. If the selling continues to pick up and there continues to be a lack of buying, then it could mean that the smart money doesn't see much value in holding their stock into the future. If they don't see any value, then why should you? >>Also: 5 Stocks Insiders Predict Will Outperform Now that we have covered insider selling, let
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV