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Insider Selling Ratio Near a 20-Year High

Posted by: Roben Farzad on December 6, 2006

“Sell, I told you. Sell it all!”
1987 was a fine year: Ronald Reagan urged Mickey G to tear down a wall, Def Leppard released Hysteria and baby Jessica McClure got fished out of a well. It was also the last time we saw the kind of wide margin of executive stock sales to purchases that is happening right now. Makes you think twice about the contagious bullishness gripping US stock markets as 2006 draws to a close. Read on…

According to the the CCH Washington Service Bureau, an SEC data miner, November saw US company executives offload $8.4 billion in stock and make just $133 million in purchases. The resulting sell-to-buy ratio of 63.18 has not been seen since January 1987, when the Dow Jones Industrial Average was wowing investors by breaking 2,000 for the first time (it's now at 12,300). With the index up 15% this year, and the S&P 500 up 12% (having nearly doubled from its 2002 low), suits are using the chance to blow out of company stock. The most active offloading is happening at Microsoft (MSFT), Google (GOOG) and retailer Kohl's (KSS). In all, insiders put in 6.34 sell orders for every buy in the two months leading up to Dec 1. And the headline $8.4 billion in sales represents the fifth highest sum since the halcyonic reign of Gordon Gekko 19 years ago. The highest: just under $14 billion in March 2000, when the S&P 500 and Nasdaq were enjoying their bubblicious all-time highs. They have yet to revisit those fateful peaks.

With the US market up 10% in the final quarter of the year, executives are clearly using the opportunity to sell (a lot) into strength. Food for skeptical thought as you get ready to mail in and allocate your 2007 retirement contribution.

"You're bringing on the heartbreak," Def Leppard once warned. Coincidence?

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