We monitor many different data points to determine the vulnerability of equity markets. One of those items is the buying or selling done by insiders—people that have information on companies beyond what is given to the public. Insiders can be company executives, founders or private investors (i.e.…venture capital or private equity). This week we will share some of the information we are seeing on insider transactions and what this behavior says about the stock market.
As you can see from the graph above, insider selling has spiked this year. Through the end of November, insider selling at public companies reached nearly $70 billion. This year’s selling is 79% higher than the average of the last decade. Considering that this data is through November and December is usually a big month for insider selling due to tax structuring, this year will easily become the largest year for insider selling in history. So far in 2021, 48 top executives have collected more than $200 million each from stock sales. Add in those who have only sold $100-200 million and the figures climb to over 90 executives.
The bulk of the insider selling this year has come from the Technology sector with $41 billion in sales. As an example of the Tech selling, Satya Nadella the CEO of Microsoft sold half of his entire stake in the company last month and Elon Musk has sold almost $10 billion of Tesla stock in the last few weeks. The founders of Google who haven’t sold any stock since 2017, both sold $1.5 billion in shares this year. Mark Zuckerberg, the founder and CEO of Facebook, also joined in the liquidation frenzy this year by increasing his share sales by sevenfold to $4.5 billion.
While insider selling has been heavy in Technology shares other industries have been participating in size. The Walton family (the heirs of the Walmart empire) quadrupled their selling this year, unloading $6.5 billion in Walmart stock. Daniel Taylor, a professor at the Wharton School at the University of Pennsylvania, called this year’s insider selling unprecedented in a recent interview with the Wall Street Journal. He noted in that interview that insiders have a long history of selling near stock market peaks.
In addition to the insider selling at public companies, this year has seen a surge in private company owners selling stock to the public through IPOs (initial public offerings).
The last two years have seen record smashing levels of private investors selling stock to the public. These sellers seemed to have timed the market well as half of the IPOs this year of more than $1 billion are now trading below their offering prices. Worldwide IPO volume this year has reached $1.5 trillion an all time record for private insider selling.
So the punchline is that the people with the best information (insiders) are selling record amounts of stock to public buyers. Now obviously there could be lots of reasons why any one person would sell their stock. Tax planning, asset diversification, etc.…but when insiders are selling en masse and at record pace then that selling may offer valuable incite.
One last thing…
Surprisingly, only five stocks have held up the NASDAQ index (technology/media focused index) this year. Without the five largest companies, the NASDAQ would be down over 20% in 2020. This outcome would be repeated in many of the broader stock indexes including the S&P 500. While the index level prices have held up well, a large portion of company stocks are down significantly this year. If the mega-cap stocks like Apple, Microsoft, Amazon, Facebook, Google and Tesla don’t continue to surge higher, then we could see some weakness finally appear in the broader market indices.