Buying and selling by insiders can give clues about stock value

The Motley FoolFebruary 24, 2013 

I saw that some insiders at a company have recently sold several million shares of its stock. When insiders sell so many shares, who are the buyers? – F.A., Decatur, Ill.

Shares sold by insiders such as officers, directors or owners of a company are sold in the market, where for every seller there’s usually a buyer. The catch is that if there are many more shares for sale than there are interested buyers, the price will drop – until it reaches a point at which buyers will buy.

Several million shares might seem like an awful lot to us, but remember that in a typical trading day, many companies experience a high volume of trading. In recent months, Best Buy’s average daily volume was about 10 million shares. For General Electric, it was more like 43 million. It can be smart to examine insider purchases and sales for companies that interest you. Some occasional selling is routine, as many insiders get a lot of their compensation in the form of stock and have to sell shares occasionally to generate cash. One or more insiders unloading a large portion of their shares can be a red flag, though. Insider buying is generally just a bullish sign. You can look up insider transactions at websites such as insidertrade.net.

FOOLISH TRIVIA

I was founded in 1929 as a moth-proofing business in Chicago. Today, based in Memphis, I’m a worldwide network of roughly 7,000 residential and commercial service businesses – company-owned, franchised and licensed. My brands include Merry Maids, TruGreen, American Home Shield, Terminix, Furniture Medic and AmeriSpec. I have also been an outsourcing pioneer, serving the health care and education industries, among others. I serve more than 8 million customers annually, offering services ranging from home inspections to disaster restorations. I was taken private in 2007 for $5.5 billion, so you can no longer buy stock in me. Who am I?

Last Week’s Trivia Answer: Tracing my roots back to 1948, at a baby furniture store in Washington, D.C., I’m now a top global toy and children’s products retailer. Based in New Jersey, I boast more than 1,500 stores in the U.S. and around the world. I also encompass the FAO Schwarz brand and sell toys through its Fifth Avenue store in New York City. My Times Square store has a 60-foot Ferris wheel. I employ about 70,000 people, and though I was a publicly traded company between 1978 and 2005, I’m now privately held. Some parents and teachers have taken issue with my name. Who am I? Answer: Toys “R” Us

Reach the Gardners at fool@fool.com, or Motley Fool, 1130 Walnut, Kansas City, MO 64106.

The News Tribune is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service