- (0:30) - Insider Selling: Are They Warning Signs?
- (2:15) - When Can They Buy and Sell?
- (9:45) - Inside Look At Bill Gates Selling of Microsoft
- (14:20) - Mark Zuckerberg and Facebook
- (17:10) - Twitter and Square: Jack Dorsey
- (22:20) - Takeaways On Insider Sales: MSFT, TWTR, FB, SQ, AMZN
Welcome to Episode #140 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
In this episode, Tracey goes solo to talk about insider trading.
Since 2011, Tracey has been following the insider buys thanks to her management of Zacks Insider Trader portfolio, which buys stocks when the insiders do.
Recently, after several technology companies reported earnings, and their shares sank after the results, people took to Stocktwits and Twitter to complain about big insider selling that was occurring just before the earnings reports came out.
Were the insiders selling ahead of a “bad” earnings report to cash in before the stock sank?
What is Insider Trading?
Tracey dives in deep to look at what insider trading is, who does it, what are the requirements, and what really went on with these particular insider sells.
Were the insider sales at Twitter and Facebook some kind of warning sign?
And should traders be using them to time trades?
Microsoft and Amazon and the 10b5-1 Plan
Many of the insider sales at Facebook and Twitter were done through a 10b5-1 Plan. That’s a trading plan set up by an insider which sells shares at designated times set up in the plan.
It allows the insider to sell shares when otherwise they might be forbidden, due to compliance reasons, from being able to sell.
Bill Gates, the co-founder and former CEO of Microsoft (MSFT - Free Report) is a good example of an insider who has a long term 10b5-1 plan.
Because he has so many shares of Microsoft, he has been selling consistently under his plan for years. While he hasn’t yet sold in 2018, his last sale was in May 2017 when he sold 2.5 million shares. He also sold in each of the prior years.
As of May 2017, he still had 167.8 million shares.
Do his sales tell you anything about what is going on at Microsoft, the company?
Similarly, Jeff Bezos at Amazon (AMZN - Free Report) has also been selling shares under his 10b5-1 plan. His last sale was in 2017. He had 78.8 million shares as of November 2017.
Selling by tech CEOs, who were also the company founder, is more common than you might think.
The Huge Sales at Facebook: A Warning?
Mark Zuckerberg, CEO of Facebook (FB - Free Report) , also has a 10b5-1 plan. In 2016, he announced he would be selling stock to fund his foundation.
It’s not unusual for insiders to announce the reasons behind their big sales, or, in this case, their ongoing pre-planned sales. That’s usually so that their sale doesn’t spook the stock market.
Much was made about the sheer amount of Zuckerberg’s sales. But as Bill Gates’ selling history attests, it can take years (decades?) to actually sell down a huge founder stock position.
What About Twitter and Square?
Jack Dorsey is the CEO of both Twitter (TWTR - Free Report) and Square (SQ - Free Report) . He has millions of shares of both.
Is he using 10b5-1 plans to sell in one or both of those companies? And if so, should traders be watching?
And what about the other insiders who were selling Twitter shares in July? Was this a warnings sign that they “knew” the earnings report would sink the shares?
Find out what Tracey thinks about all of these insider sales and whether or not it’s a reliable trading indicator on this week’s podcast.
[In full disclosure, Tracey owns shares of AMZN, MSFT, and FB in her personal portfolio.]
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