Insiders Aren't Selling, So Why Should You?

Take it from the insiders -- the chairmen, directors and CEOs -- that this is not the time to be selling stocks. They're certainly not.

Why else would the ratio of insider selling to insider buying be at more than a two-year low?

As of Aug. 9, the ratio of insider selling to insider buying in the total stock market stood a bit below 5, according to data from Thomson Reuters.

Put another way, CEOs and board members are selling $5 worth of stock for every $1 they're buying. (They always sell more than they buy.)

The important part of this news isn't just that the sell/buy ratio is at its lowest level of the past year. Rather, it's the lowest reading since March 2009, when stocks hit their bear-market bottom of 666 on the S&P 500.

Have a look at this chart I whipped up using data from Thomson Reuters, showing the ratio of insider selling to insider buying over the last 12 months. Note how insiders didn't sell into the June swoon either:


Insiders aren't panicking for a bunch of reasons. (You can't make money exercising underwater options, for one thing.) But they also know volatility is not your friend.

The Dow has taken a thousand-point round trip in the last couple of days. Meanwhile, the VIX (VIX) volatility index (also known as the investor fear gauge) has gone apoplectic. It's popped 30 percent in three sessions.

Volatility equals risk because it increases the odds that you will buy high and sell low. This, of course, is the opposite of what you are trying to accomplish. Insiders get the buy-low-sell-high game.

True, we still have plenty of time left in August, so the ratio of selling to buying will likely rise before month's end. The message, however, remains clear: Insiders -- who know more about their businesses than you do -- don't sell low.