Insiders flee stock markets

Company directors are bailing out of stocks. Is it time to join them?

It's widely accepted that company directors are best placed to gauge the prospects for their business. So if many insiders across the stock market are bailing out of stocks, it may be a signthat executives fear a downturn.

It's worth bearing in mind that insiders sometimes sell stocks for reasons unrelated to their firms' outlook, typically to raise some capital. Many are paid in share options, for instance, and will cash these in by selling stocks before the options expire. But even taking this into account, insider sales look worryingly high at present.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Wirtschaftswoche points out that inApril the ratio of insider sales to buys in the US market reached a level that has been exceeded only twice in early2007 and early 2011. Both these occasions were followed by market declines afew months later.

Strip out salesrelated to cashing in options, anddirector sales haven't been this high in25 years. Sellers have outstripped buyers by six to one, compared to the typical ratio of three to one.

Advertisement
Advertisement - Article continues below

It's a similar story in Europe. Patrick Hable of 2iQ-Research, which monitors European director sales, says salesare often high after a long rally, but the proportion of buyers compared tosellers is extremely low.

There are now 13 buyers for every 100 sellers. At the beginning of 2014, there were still 40. Anything below 20, says Hable, should ring alarm bells. Insider sales are another sign that this five-year rally may be on borrowed time.

Advertisement

Recommended

Visit/517688/the-british-equity-market-is-shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019
Visit/510135/trade-war-ceasefire-boosts-stockmarkets
Economy

Trade-war ceasefire boosts stockmarkets

Stockmarkets sighed with relief after the G20 summit in Japan brought a handshake between Donald Trump and Xi Jinping.
4 Jul 2019

Most Popular

Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/personal-finance/mortgages/601045/coronavirus-what-it-means-for-your-mortgage-or-your-rent
Mortgages

Coronavirus: what it means for your mortgage or your rent

Ruth Jackson-Kirby looks at all the key questions for owners, renters and landlords affected by the coronavirus crisis.
29 Mar 2020
Visit/economy/uk-economy/601063/the-uks-bailout-of-the-self-employed-comes-with-a-hidden-catch
UK Economy

The UK’s bailout of the self employed comes with a hidden catch

The chancellor’s £6.5bn bailout of the self employed is welcome. But it has hidden benefits for the taxman, says Merryn Somerset Webb.
27 Mar 2020
Visit/investments/commodities/energy/oil/601069/oil-prices-have-collapsed-and-some-argue-that-they-could
Oil

Oil prices have collapsed – and some argue that they could even turn negative

With an excess of supply and a drastic cut in demand, the oil price has been hammered this year. John Stepek looks at what that means for oil produce…
30 Mar 2020