When Is Insider Selling a Bad Sign?



UPDATED: March 2022





When Is Insider Selling a Bad Sign? - There are few things in life worse than hearing that corporate insiders of your favorite stock are selling a large number of their shares. When it comes to insider selling, it is generally considered a good sign that insiders know their stock will under-perform in the market. Even though that may be true in some instances, but most of the time, insiders are selling for performance financial reasons, which has nothing to do with the company's future financial performance.





When Is Insider Selling a Bad Sign?





When company insiders decide to sell off large numbers of shares, should investors do the same and follow them to the exit doors? We will discuss how you should look at insider selling and when insider selling may be a bad sign for investors.





Keep Calm During Insider Selling





The first thing you must do when looking at insider selling activity is to remain calm and not panic. Most companies today pay their executives and employees smaller salaries and compensate them with options and stock shares. Employees and executives can then choose to sell their shares to raise personal capital. So, if you see an insider selling the vast majority of their shares, it doesn't have anything to do with the company's financial performance.





Another thing you must consider when studying insider selling is that it says very little about the financial market. Insider buying is a good indicator that insiders know the company's stock value is about to rise. However, you can't always tell whether insider selling is a bad sign. Therefore, you must look at that insider activity with a balanced mindset and identify other factors that may indicate why insiders are selling their shares.





Red Flags to Watch Out for in Insider Selling





Even though you can't know the real reasons why insiders are selling their stock, there are some tell-tale signs when insider selling may be a warning that the company's stock value may plummet in the coming weeks or months. Here are the red flags to watch out for in insider selling activity:





  • No major announcements are made before company insiders start selling a significant number of shares
  • There is a trend of corporate insiders selling shares within a short period
  • Sales are being made on the open market
  • The insiders have a previous history of selling shares at their peak price




Conclusion to When Is Insider Selling a Bad Sign?





In general, large-scale selling of shares also occurs when insiders know that their company's stock price will not rise further in the coming months.





The one major factor you must keep an eye on is what level of insider selling activity is occurring across the board. If all the top executives are selling their shares, it could be a sign that the stock value may be about to drop in the market. However, you shouldn't automatically assume the worst when it comes to insider selling, as it's not always a bad sign.





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About the Author & How YOU Can Profit: This article is the copyrighted product of the team at BuybackAnalytics.com .





Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept:  Follow the trades of Insiders - CONSISTENTLY PROFITABLE Traders, Investors, and Institutions because THEY get Inside Information that YOU don't:





LEGAL Insider Trading / Inside Traders (CEOs, CFOs, Corporation's Accountants & Attorneys, Politicians, etc.)
Stock Buybacks (Share Repurchases) by Public Corporations (ie. Apple, Tesla, Netflix, Meta (Facebook), Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)





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