Insider selling comes roaring back
Insiders don't sell low. Just look at how they behaved in October. As the market soared to enjoy its best month in 24 years, insider selling came surging back after two straight months of near-record lows.
Corporate insiders, including CEOs, CFOs, chairmen and directors, sold nearly $21 worth of U.S. stocks for every $1 they purchased last month, according to new data from Thomson Reuters.
Insiders always sell more than they buy. What's significant is that as stock prices recovered, so did insiders' drive to sell. October's sell/buy ratio came close to its monthly average going back to December 2010, which stands at almost $24 to $1. That marks a sharp increase in selling activity compared with the previous couple of months. More on Markets: Stocks have best month in 24 years The lesson here for retail investors is that when the market was swooning in August and September, insiders held tight. They didn't dump shares into the panic. Indeed, in August and September the sell/buy ratio dropped to levels last seen in late 2008, when markets were reeling from the collapse of Lehman Brothers and the global financial crisis. In September insiders sold just $6 in stocks for every $1 they bought. In August they sold a bit more than $3 for every $1 in purchases. Note that insiders also sold far fewer shares when the market was tanking back in June. See the chart below:
Insiders don't panic for a bunch of reasons. (You can't make money exercising underwater options, for one thing.) But they also know that market turbulence is not your friend.
With the Greek debt crisis throwing stocks back into a tizzy of volatility, retail investors would do well to keep their itchy trigger fingers in check. Don't panic. Don't lock in losses. The insiders surely won't.