It makes intuitive sense.
When insiders sell stock, there must be something wrong. When they buy, they're sending bullish signals because they know something we don't.
I subscribe to the "Seinfeld" perspective on intuition: The little man inside of you doesn't know all; in fact, there's a better-than-zero chance that your little man is an idiot.
Everybody likes to dog IPOs. Take Facebook for example.
Every hysterical non-visionary and his buy-and-hold grandmother warned the stock would tank on lockup expiration. Didn't really happen. In fact, Facebook went on one hell of a run over the last two weeks — up roughly 25 percent.
Lockup-associated or not, you have to understand how insider selling on these stocks rolls.
If you look up insider transactions for just about every big name company (and many small), you'll find selling. Tons of it. And it tends to happen without regard for the direction the stock is headed or the prospects of the company that floats the paper.
Most insiders sell as part of their compensation packages, particularly at relatively young and/or technology companies.
Look at Facebook COO Sheryl Sandberg — like any other insider, the Securities and Exchange Commission makes her moves public. She's executing regular automatic sales that she probably doesn't even pay much attention to. It's not like Sandberg logs in to E*Trade hemming and hawing over the price she gets for her 169,000 share lot of Facebook.
There's nothing nefarious about her selling. Forget that she still owns like two million shares. That doesn't even matter. She's selling because that's part of the game. Good company, bad company, good IPO, bad IPO — insiders sell to get rich or, in Sandberg's case, richer. Don't read into it.
By contrast, man a-freaking-live, I hope you didn't take cues from recent insider buying at Hewlett-Packard.
Over the last six months, a couple of insiders on HP's board gobbled up shares at prices ranging from approximately $21 to $23.
According to SEC filings, it appears that HP's executive chairman of the board, Raymond Lane picked up nearly 250,000 shares of HP in that ballpark over multiple buys.
He's getting crushed.
Another director, Ralph Whitworth, is in even worse shape, though he doesn't feel as much personal pain.
Whitworth runs a "value" fund out of San Diego known as Relational Investors. In other words, he manages money. And he's bullish HP. So bullish that he loaded up this past spring adding millions of shares to his fund's allocation.
Consider one of his buys. On May 31, Relational Investors picked up 3,092,158 additional shares of HP at an average price of $22.54. That's an investment of $69,697,241.
Using HP's Friday close of $12.44, that lot is now worth just $38,466,445, a decline of about 45 percent. Whitworth's firm is long just shy of 35 million shares of HP, according to the latest documents filed with the SEC.
If this was an "activist" move by Whitworth, it's not working. He's overweight HP, he doesn't own enough to get very hostile, he's getting killed on the position and if he wields any influence on the company's board, it's having no positive impact.
Don't follow the noise that surrounds insider buys and sells, particularly when you hear people yelp about "value" from the bullish side. On the bearish side, it's popular to blab uninformed that insiders sell because they don't believe in their company. Often, that sentiment could not be farther from the truth.
—By TheStreet.com's Rocco Pendola
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