Insider Selling Raises Eyebrows

Discussion
Mar 24, 2004
George Anderson

By George Anderson

A column by Michael Brush on the MSN/Money Web site expresses concern over the number of top execs at specialty retailers who have been selling off shares of their company
stock.

According to Mr. Brush, “Insiders at specialty retail chains dumped $341 million in stock in January and $324 million in February. History clearly shows this is a red flag. Whenever
selling goes above $300 million for a quarter, specialty retail stocks are typically a lot lower a few months later.”

He adds, “At two of the most richly valued specialty retailers, Chico’s FAS and Starbucks, insiders were dumping shares at considerably more than twice the average five-year rate, according to Thomson Financial. It’s the same at Aeropostale. These are compelling numbers that should make you head for the hills if you own these stocks.”

The columnist points out, fairly, that not all share his view.

“Despite the avalanche of selling,” he writes, “money managers enjoying the ride in these stocks dismiss the insider activity as insignificant. It’s little more than natural
profit-taking by insiders after some good moves in their stock, they say. The insiders still own huge positions in their own companies, they argue, so don’t worry.”

Moderator’s Comment: Does the amount of insider trader being done by retail execs give you pause for concern?

As has been stated before in this space, execs have numerous reasons for selling shares and in some instances are required to exercise an option or lose
the income. We’re not about to say we wouldn’t do the same given the same circumstance.

We have to admit, however, we’ve received more than our fair share of email recently asking about such deals with concern being expressed about the health
of the company in question.
George
Anderson – Moderator

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