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Stockllama10 (65.69)

Why does Insider Trading matter again?

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January 06, 2014 – Comments (1) | RELATED TICKERS: GOOGL

Insider trading has been leaned upon a lot as a reason. Many stock pitches are beginning to resemble

 "The chairman of XYZ Inc. just bought some shares! He wouldn't invest in a suckish company! BUY ALL THE XYZ SHAREZ"

or:

 "The chairman of XYZ Inc. just sold half his shares! He must be bailing before the crash! SHORT ALL THE XYZ SHAREZ"

 Just remember, as you always should in the stock market: there's a reason for that.

 Sometimes, it will actually be correct: XYZ Inc.'s founder is investing in his own company because he thinks it will go up. Or, he wants to retake control from his annoying CEO by buying out some executive shares. Or, he wants to get everything in stocks before the Bitcoin makes everything worthless. (don't ask me, ask him.) Or, he read a new article extolling stocks and figured that the best place to start was at work. Or, he has an inflated ego. Or, or, or.

 The same is true with negative insider trading: take Eric Schmidt.

Google's a nice stock to have. I'm not saying I would buy it at $1,117.32 or whatever it is when you're reading it (unless it dropped to $5, then take a look, but there's a reason for that.), but everybody who owns it seems to like it. My old TMF account bought it up at $570, so I like it. But Eric Schmidt, CEO, has sold a lot of his shares recently. Using the above philosophy, we wouldn't buy into Google. He's the CEO, right? He knows more about Google then we do. 

 Or not. 

That's right, the CEO of Google is sellling half his Google stock to diversify his portfolio. That's it. There's your reason, and you should probably cancel that underperform call you made on Google because of it.

So remember, when you're looking at the insider trading numbers: there's a reason for that. 

1 Comments – Post Your Own

#1) On January 07, 2014 at 1:21 PM, lemoneater (79.15) wrote:

Better to be an llama than a lemming. Good advice.

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