Should You Worry About Insider Selling?

“Time is the scarcest resource leaders have. Where they allocate it matters – a lot.” That’s according to a Harvard Business Review study on how CEOs spend their time of which a great deal is spent working. CEOs put in 9.7 hours per weekday, on average, also conducting business on 79% of weekend days when they spend 3.9 hours daily, on average. Top that off with several hours a day on 70% of vacation days and you start to see just how grueling these top positions are. Then, when a CEO decides to cash in on some shares and spend the money on something nice, they’re berated by investors. Nobody said being a CEO was easy.

When a company’s CEO or other insiders start buying shares, their intentions are clear. They believe in their company, and they believe their company’s stock is at a bargain price. A study by Harvard and Yale students found that insider purchases tend to beat the market by 11.2% per year. But what about when insiders sell shares? Does that mean they’re losing faith in their company? Not always.

Reasons Insiders Sell Stock

There are multiple reasons why insiders may sell company stock, and it’s important to understand the reasons for these sales before letting them impact your own decisions. According to a study conducted by the University of Oulu in Finland, the most common reason an insider may sell shares is diversification. When an insider’s net worth becomes overly concentrated in company stock, it may be time to trim. The Oulu study also found that insiders with highly concentra