In the month of March, Apple (AAPL) insiders have been dumping their stock. It is said a picture is worth a thousand words. There is no picture here, so the table below will have to do. I am purposely not regurgitating in one thousand words the contents of the table. The words are better used to describe what this selling means.
Gauging sentiment is an important part of my investing method. For the purpose of analysis, these days we gather sentiment data from individual investors in four classes in addition to the data from institutional investors.
For an astute investor, who has been managing an Apple position in the context of a diversified portfolio and has appropriate risk controls in place, this selling by insiders is meaningless. Most of the stock has been sold under Rule 10b5-1 trading plan. Executives have inside information. This rule is designed to control transactions in a stock in a manner that avoids accusations of insider trading.
In theory, the concept of selling when insiders are selling and buying when insiders are buying sounds great. It is often said, “Who knows the company better than the insiders?”
I have tested the theory over a large data set. My conclusion after extensive rigorous testing is that for the most part insiders are not good market timers.
There are only two instances where insider trading data is helpful. First when a high ranking insider buys stock in the open market with his own money, and size of the purchase is material in relation to that person’s net worth…Read more at Forbes
