Slowdown Time: Corporate Insiders Dial Back Sales—and Buys

Tracking what corporate officers and other insiders do with their company shares has long been an obsession of some stock pickers. Are the insiders selling? That might be a signal of something on the way, good or bad.

In the blah opening act of 2022, though, insiders aren’t doing much selling, or buying, of their own stock, according to research firm Verity. The S&P 500 index is down 6.4% this year, amid worries about rising interest rates, rampant inflation, and the Ukraine war.

The number of insiders who sold stock was at the lowest level since 2018’s fourth quarter, when equities displayed a similar negative bent (the index was down 4.6% for the year).

To Ben Silverman, Verity’s director of research, the current situation is a bullish sign. “It means insiders are willing to wait for valuations to recover before selling again but they’re too cautious to buy en masse right now,” he writes in a report.

In Silverman’s view, “Insiders are inherently sellers thanks to stock-based compensation, so when they stop generating liquidity it’s a sign that they’re not comfortable with current valuations and prefer to wait out for higher prices.”

A lot of their stock came to these executives as part of their pay packets, as grants or via stock options. Hence any market downshifts are paper losses.

“That ‘free’ and cheap stock means insiders have a lot less risk than other market participants,” Silverman writes, “so a significant decrease in selling is a good indicator they think stocks are oversold.”

Last year, when stock returns soared (up 29%), insider sales were robust. Verity finds that among the biggest sellers were Elon Musk at Tesla, Jeff Bezos at Amazon, and Mark Zuckerberg at Meta, formerly Facebook.

One thing is for sure: these corporate honchos often know what they’re doing when it comes time to take profits. “There is significant academic research that suggests corporate insiders outperform the market when buying shares in their own companies,” writes Fintel, another research firm that follows insider moves.