Posted on: Saturday, January 1, 2005
Insiders increase sales of company shares
By Steve Matthews
Bloomberg News Service
NEW YORK — U.S. executives and directors sold $51.3 billion of shares in their companies last year, the largest amount since 2000 when shares of Internet-related companies plunged. Microsoft Corp. Chairman Bill Gates topped the list.
Associated Press library photo • 2004 The pace of selling picked up as stocks surged in the fourth quarter, with November's sales the highest since August 2000, according to Thomson Financial. U.S. executives may be concerned about the prospect for slowing earnings growth in 2005 as the Federal Reserve Board raises interest rates.
"CEOs are not enthusiastic about company shares," said Michael Painchaud, director of research for Seattle-based Market Profile Theorems, which provides research on insider sales to large investors. "The attitude of insiders can give clues as to the shape of the year ahead. The clues don't look good for equities in 2005."
The value of sales was 24 times the value of purchases, according to the Washington Service.
In November, insiders sold $46 in stock for every $1 purchase, reflecting "very bearish" sentiment, said Lon Gerber, director of insider research for Thomson Financial.
Wall Street analysts have expressed similar skepticism. Fourteen strategists surveyed by Bloomberg said they expect the Standard & Poor's 500 Index to rise on average 2.5 percent next year.
Earnings for companies in the S&P 500 are forecast to rise 10.5 percent in 2005, down from 19.2 percent this year, according to Thomson Financial.
Sales of shares by executives reached the highest level since 2000's record $80.1 billion, when Internet and computer-related stocks pushed the Nasdaq Composite Index to a peak of 5,132.52 in March of that year. From that point through the end of 2003, the index lost almost three quarters of its value.
Insider sales accounted for seven of every 10 transactions by insiders. Painchaud said it was the highest level since 1993 and a signal the market may decline.
The S&P 500 declined 1.5 percent in 1994 following three yearly gains.
Some investors say purchases by executives and directors may be a better indicator of a stock's prospects than insider sales.
Insiders have many ways to use their money, and buying shares is seen as a sign of confidence. Insiders tend to sell for all sorts of reasons — to buy a house, diversify investments or because they suspect the stock is near its peak.
Sales by so-called insiders rose 20 percent through Dec. 24, while purchases rose 13 percent to $2.11 billion, according to the Washington Service, which tracks U.S. Securities and Exchange Commission filings. Gates, along with executives of Dell Inc. and Oracle Corp., sold more than $1 billion in stock.
Microsoft Chairman Bill Gates led the sale of $51.3 billion of stock by so-called insiders, the largest amount since the plunge in shares of Internet-related firms in 2000.
