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I’ve seen several headlines over the last month from a variety of sources such as the Wall Street Journal, Barron’s, Zero Hedge and MarketWatch that claimed now was the time to dump the stock of a specific company and/or entire stock indexes because corporate executives were selling multiple times more stock they own in the company they work for than they were buying.
Their logic goes like this: company executives likely are knowledgeable about the financial health and future of their company and if they though the future looked so good than they would be buying instead of selling their stock.
While I understand their logic, I believe this environment of fear concerning executives selling some of their stock is entirely overblown and here’s why:
- At my previous employer, which was a Fortune 100 company, I was paid a good portion of my annual bonus in company stock
- For many years my 401k match was given in company stock.
- Repeat this same pattern over several years and eventually my employer’s stock became a significant portion of my investments.
- This happened even though I never bought a single share of my employer stock since they were all given to me in some way (bonus) or another (401k match)
So at one point, my income was tied to the strength of my employer via my job and the financial health of my portfolio was tied to the strength of my employer via company stock.
I felt this was too much concentration of my financial well being tied to one company so I decided to sell some of the stock of my employer because I didn’t want to be like those Enron employees who were on TV shortly after the company went under saying they had no idea what they would do next because they now had no job and their 401k was wiped out because a majority was in Enron stock.
This didn’t mean I thought my employer was going under or wasn’t an industry leader, I just wanted to diversify myself and my investments.
So when I come across stories of executives selling some of their company stock I may read the story but it doesn’t inspire me to go scour my investments and dump any of the same stock.
What does, however, make me take notice is when company insiders start buying more of their company stock because they likely already own shares that were given to them in other formats such as stock options, grants, etc.