U.S. corporate insiders selling shares at fastest pace since financial crisis a decade ago

Insiders at U.S. corporations are selling shares at a pace not seen since before the financial crisis a decade ago.

Insiders are people who work as directors or senior officers of companies, whose compensation often includes things like stock options and common shares so they have a vested financial interest in the companies for which they play key roles.

Because they are so fully invested and have access to data about how their companies are performing before the general public does, some investors believe valuable insights can be gleaned by watching whether insiders are putting more or less of their own money into them.

If that theory holds water, one message has been coming in loud and clear of late: sell.

According to research firm TrimTabs, in the month of August insiders at American companies were selling, on average, about $600 million worth of shares in their own companies a day (all figures US).

Five times this year already they've sold more than $10 billion worth of stock in a single month. The last time the markets saw that much selling that many times in a year was in 2006 and then again in 2007 — right before the stock market imploded in late 2008.

'Not a positive sign'

Analyst Winston Chua with TrimTabs says there's nothing necessarily alarming about insiders cashing in, but it's certainly "not a very positive sign."

"It can be a bad sign of lack of corporate confidence."

It's also quite telling to note where much of the selling is taking place: tech stocks.

Insiders at technology companies, including the so-called FAANG stocks — an acronym for Facebook, Amazon, Apple, Netflix and Google — have been some of the biggest sellers. That could be a sign they think the impressive years-long run-up in the share prices of those companies is over.

Data from Canadian investment firm INK Research shows that Amazon insiders have sold $2,862,703,598 worth of shares in the company through July and August — three times the amount of any other company.

A good chunk of that was by founder Jeff Bezos, who was possibly selling shares to abide by the terms of his divorce agreement with wife MacKenzie, from whom he split earlier this year.

But other Amazon insiders have also been selling. And while the company may comfortably sit atop the insider selling leaderboard, other tech companies are on the podium.

Facebook insiders have sold a net of $377,471,675 worth of their company's stock; Apple insiders $61,942,104; and Netflix insiders $31,264,279, all since Canada Day.

INK president Ted Dixon tabulates that U.S. firms are seeing, on average, 55 net buys by insiders for every 100 sells at the moment. That's not as low as the 30-per-100 seen earlier in the year but still considered low by experts — suggestive of an insiders' market that is, on the whole, getting out.

"You're seeing a lot of profit-taking in the U.S.," Dixon said in an interview.

Not all sectors

Dixon says it's not necessarily a broad-based sell-off, since a number of sectors are actually seeing a lot of buying — particularly the hard-hit industrial and energy sectors in both the U.S. and Canada.

"We've seen a significant amount of insider [buying] activity in the oilpatch, which suggests we are nearing the worst of it for the sector," he said. "Stock valuations have priced in a lot of bad news."

But buyers trying to time the market bottom of those sectors are masking brisk selling activity in other areas. 

Still, Dixon isn't among those who thinks insider selling is a surefire predictor of bad things to come, since insiders may sell stock for all sorts of non-calamitous reasons — from paying taxes, to settling estates, as Bezos is doing, to calling in some cash to put to work in other investments.

Which is why he pays more attention to the buying, rarer though it may be at the moment.

"There can be many reasons insiders sell," he said, "but usually when they buy it's for one reason: they think they can make some money."

Volatility returning

Instead of being a warning of a major stock slump about to happen, Dixon views the current surge in insider selling as a sign that the rules have changed.

Technology stocks had a great run: investors did well to simply buy and hold them regardless of performance. But now fundamental research into underlying numbers is starting to win out again, and the belief in tech's infallibility is starting to wobble. 

"We are seeing an uptick in volatility," Dixon said. "We are transitioning very slowly into a value-oriented stock pickers market."

Chua agrees with that assessment. 

"What I'm hearing from financial advisers is they think that because of increased volatility they think tech might underperform," he said. 

"People are rotating out of technology and going into maybe more conservative sectors."