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.
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