Keep an Eye on Buying & Selling by Corporate Executives
A look at “insider” trading.
Provided by Jamie Hansman
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.
"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.
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.
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 financial professionals watch to get a perspective on the financial markets. This 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.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1. CNBC.com, July 24, 2020