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CEOs sell-off in rage: boon or bane?

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Since the second quarter of 2020, investors' positive sentiments have been pushing up the stock market to become one of the biggest bull markets in history. Meanwhile, the executives of star companies have started to cash out. After Musk announced a 10% sell in his TSLA stake, the Microsoft CEO Nadella also decided to "cut his position in half". Last week, Nadella sold 838,600 shares of MSFT stock, about half of his holdings. In addition, Jeff Bezos has also reduced his holdings of Amazon shares AMZN worth about $10 billion this year.
Is CEOs' sell-off good or bad? Should we follow their moves or just turn a blind eye?
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Does CEOs’ sell-off mean it’s time to sell?
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ColumnDoes CEOs’ sell-off mean it’s time to sell?

Recently, reports about cashing out by American business leaders have stirred the nerves of investors. It has reached its peak when the CEOs of $Tesla(TSLA.US)$and $Microsoft(MSFT.US)$ started selling their stock while their company's stock prices were hovering near new records.
$Microsoft(MSFT.US)$ Chief Executive Satya Nadella sold about half of his shares in the company last week, reported by Wall Street Journal on Nov. 29.
The filing of Mr. Nadella’s transaction was made public on the Wednesday before the long Thanksgiving weekend. The transaction yielded more than $285 million for Mr. Nadella. This is the single-largest stock sale for Mr. Nadella, according to InsiderScore.
How did the market react?
Interestingly, MSFT has fallen 2% since LAST Wednesday, while $S&P 500 index(.SPX.US)$ has fallen 2.64% over the same period.
Ben Silverman, director of research at InsiderScore, said the sale is similar to Tesla CEO Elon Musk's recent stock sales. Mr. Musk took to Twitter on Nov. 7 pledging to sell 10% of his stockholdings. The Tesla CEO was taking advantage of gains in the company’s stock price, Mr. Silverman said.
$Tesla(TSLA.US)$'s stock price has fallen by about 7%, and its market value has shrunk by nearly $100 billion from that point.
Does CEOs’ sell-off mean it’s time to sell?
Action speaks louder than words. Of course, the behavior of business leaders will affect investors' confidence in the company. At least, for better or worse, news usually makes stocks more volatile in the short term.
However, their actions are not always noteworthy.
For one thing, insiders may have their own reason each time they sell stock. As to Nadella, analysts said the move could be related to Washington state instituting a 7% tax for long-term capital gains beginning at the start of next year for anything exceeding $250,000 a year.
For another, insider trading shouldn't be the only source of information, because not every executive is correct each time. In the long run, the best option is to research in-depth.
News about the sale of stocks by executives is reported from time to time. To paint a clearer picture of their effects, let's check the performance of markets and those stocks:
1. The broad market has continuously set new highs since the pandemic.
2. Taking Amazon as an example, after the CEO sold shares, the stock price has still climbed higher.
The same story also applies to $Pfizer(PFE.US)$, whose CEO sold stocks last November.
3. It's not all good news.  $GameStop(GME.US)$ CEO announced to sell stocks in April. Here is how the stock price performed since then.
The bottom line
1. The CEO's sell-off may help you predict the future volatility of stock prices in the short term.
2. There is no obvious correlation between long-term stock performance and CEO selling.
3. Insider trading should not be the only source of information. Before making wise investment decisions, we should rely on in-depth research to check the company’s financial statements, annual reports, and other public opinions.
As a rule, value investors generally prefer to invest in high-quality companies with fair prices. The question is, how to identify the value of a company?
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Does CEOs’ sell-off mean it’s time to sell?
Does CEOs’ sell-off mean it’s time to sell?
Does CEOs’ sell-off mean it’s time to sell?

Should Insider Selling be a Concern?

It is a good practice to examine insider sales for companies that are of interest to investors. Some occasional selling is routine, as many insiders obtain a huge portion of their compensation in the form of stock and therefore have to sell shares to generate cash. While insiders unloading a large portion of their shares can be seen as a red flag, the massive insider selling by CEOs of companies like $Microsoft(MSFT.US)$, $Amazon(AMZN.US)$ do not necessarily indicate that the companies are in trouble. CEOs may sell their shares from time to time for personal reasons that are unrelated to a company's short term or long term prospects. The higher multiple, together with other macro headwinds like supply chain constraints, inflation and the Omicron variant could have convinced the CEOs to sell off some of their shares. In general, investors should be more concerned with insider sales of struggling companies rather than hugely successful ones $Microsoft(MSFT.US)$, $Amazon(AMZN.US)$. Even the massive selling may not indicate that the long term prospects of the company have shifted. As such, it does not make sense for investors to sell off $Microsoft(MSFT.US)$ just because of the recent huge insider sale by the CEO. Instead, investors should pay more attention to the long term growth opportunities in its expansion of the ecosystem and cloud growth.
$Dow Jones Industrial Average(.DJI.US)$
$Nasdaq Composite Index(.IXIC.US)$
$S&P 500 index(.SPX.US)$
$AMC Entertainment(AMC.US)$
$Meta Platforms(FB.US)$
Should Insider Selling be a Concern?

Sell-Offs by CEOs - Good or Bad?

Insiders have greater and earlier access to information and news, which is why insider trades are closely watched. The following are some of the companies whose CEOs have cashed out their stocks this year $NVIDIA(NVDA.US)$ $AMC Entertainment(AMC.US)$ $Microsoft(MSFT.US)$ $Amazon(AMZN.US)$ $Tesla(TSLA.US)$ $Meta Platforms(FB.US)$ $Walmart(WMT.US)$ $Alphabet-C(GOOG.US)$ $Alphabet-A(GOOGL.US)$  $DBS Group Holdings(D05.SG)$ When CEOs sell their stock, is it a bad thing? The short answer is it depends.
CEOs get stock options as part of their remuneration package and it is reasonable for CEOs to cash out some of their holdings from time to time to fund their personal or investment needs. For instance, Bezos needed funds for his Bezos Earth Fund. In the US, the sale may be part of a predetermined plan under Rule 10b5-1 to avoid contravening insider trading laws. Despite this, some may argue that the CEO can influence the date of release of news that would be positive or negative for the stock, as could be seen in the speculations generated when the CEO of $Pfizer(PFE.US)$ sold $5.6 million of stock on the day of vaccine announcement.
On the other hand, significant sell-offs may indicate the stock is over-valued and/or an expectation that the stock price will become bearish. Even if it were not the case, the market may perceive it to be bad and start selling off in fear, setting off a price fall.
The factors I would consider when assessing whether a sell off is negative are:
1) The percentage of shares the CEO still owns after the sale. If the CEO still has many shares remaining, chances are he believes in the company‘s prospects and his interests are still closely aligned with the company‘s.
2) The fundamentals of the company. If the company is a market leader, I would not be too worried.
3) The greater operating environment (prospects of the economy and sector, signs of regulatory changes etc).
4) Any rumours. This is not dependable unfortunately as rumours can turn out to be false.
In conclusion, a sell off by the CEO may not be a signal to sell. One needs to consider a variety of factors.
Disclaimer: The above is my personal opinion. It is not financial advice or a recommendation to invest. Please consult a financial advisor before making any investment decision.
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Making the Most of Star Institutions’ Positions
Sell-Offs by CEOs - Good or Bad?
Sell-Offs by CEOs - Good or Bad?
Sell-Offs by CEOs - Good or Bad?

ColumnWeekly Editors' Picks (12/6)

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Weekly Editors' Picks (12/6)

🍺My thoughts on these CEOs

Actions speak louder than words. Business leaders often tell you why their company stocks is a buy but the actions of the executives could spell a different story. All these insider activities might not noteworthy but major trend and especially by top executives could provide an insights into the future of the markets. One might think off that they want to jump off the boat before the market drops and sinks.
If a company shows a lot of buying activities, it might be a good signal that the stocks are going up soon, and one of the best parameter is looking through its annual report and financial statements.
What if only the CEO is the only one doing the selling but others are holding shares? That is not necessarily red flag. There are plenty of reasons why the CEO sold their stocks that have nothing to do with the underlying business. $Tesla(TSLA.US)$ Musk sold off a portion to meet tax obligations while $Walmart(WMT.US)$ the Walton family sells shares periodically to fund philanthropic efforts, as per CNBC 🤭. They might be tons of reasons for them to pocketing the cash. News reported that the state of Washington has imposed 7 percent of capital gain over 250k, plus hike in federal taxes of 5 percent on income over 10 million and 8 percent over 25 million. $Microsoft(MSFT.US)$ Nadella, $AMC Entertainment(AMC.US)$ Adam and $Amazon(AMZN.US)$ Bezos could be planning ahead on this.
$Microsoft(MSFT.US)$ I know you people are trying to use "regular investor guy" mentality to justify the CEO selling ½ his shares, but a CEO is not a regular guy. It shows a lack of confidence in his company and his management to sell that much all at once. Selling now to avoid paying a 7% tax later means he doesn't think the stock will go up 7% in the next year. It also lacks class, since that kind of money is just a scorecard. You don't actually spend it. So talking about tax management like you're some kind of regular guy who's saving up to buy a house is silly. He chose to sell shares because he could see that the price today is higher than it will be in the future. This is terrible optics and is a clear sign that something bad is coming. A CEO has a pretty good idea what business looks like for the next 12 months & this is a huge sell signal. Invest if you want, but don't say I didn't warn you.
$Microsoft(MSFT.US)$ok... well how about you keep buying all these overvalued tech companies while their CEOs are selling and we'll see who has better returns in the next year. You're equating business operating results to a rising stock price and that's a flawed way to think about stocks. Great companies (like MSFT) can have overvalued stocks. To sell doesn't mean you're bearish on the company and it's operating performance, it means you think the stock or the market in aggregate has gotten ahead of itself and is due for a pullback.
$Microsoft(MSFT.US)$ There’s a Long term capital gains tax of 7% for income over $1M starting Jan1, 2022 so he is clearing his plate ahead of time to avoid paying this tax. Expect more executives in WA state to do this in 2021.
$Microsoft(MSFT.US)$ A CEO selling more than half his shares is a huge signal that the market is at its peak.
$Microsoft(MSFT.US)$ I am in until the moat dries up. I don't have a crystal ball, but I don't see that as an immediate threat. With azure and other products working seamlessly, subscriptions, surface computers, and MSFT bolting on acquisitions I feel safe. For now.
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