Does Insider Selling Really Give Awesome Signals? GMCR Case Study

It’s only been all over the news but if you haven’t heard here is the latest from Bloomberg:

Robert P. Stiller, founder and chairman of Green Mountain Coffee Roasters Inc. (GMCR), sold $66.3 million of his stock before it plunged the most in four months on news that Starbucks Corp. (SBUX) had developed a rival to its K-Cup brewer.

Stiller’s combined sales on Feb. 15 and 24 were his largest in a single month since at least 2003, when the stock traded below $2, data compiled by Bloomberg show.

I have news for you people, executives do this all the time. Just not on this scale. Most will buy/sell stock throughout the year and they do so typically because they know something we don’t necessarily.

But are they always right in their transactions and should we use it as a market signal? Before we explore this, here’s the chart of GMCR.

I Never Really Believe The Insider Trading Theory

I used to work both in M&A investment banking and as a REIT analyst so I know the limits on who can and can’t purchase stock and what you have to go through to do it.

Even for a guy like me working for these banks I had to file paperwork with someone higher up before I placed a trade or put money to work; and I can only image the strict filing that an executive would go through.

Was He Wrong To Do?

If he did it legally – hell no! Not a chance! He has a right to make money too and IF he filed the paperwork correctly and on-time then all he did was make a great investment decision.

We don’t criticize executives for pouring money into their own companies stock then who are we to say the can’t take money out when the feel like it. He didn’t liquidate his entire stake in the company and therefore has the right to sell stock.

PS – If you are looking for research on this check out InsiderScore.com.

Size Does Matter w/ Insider Selling

I think this is a great example of when insider selling signals do work. And only because of it’s size and scope.

This isn’t a 3rd or 4th level Managing Director selling 1,000 shares; this was the Chairman and Founder selling more than 6.9% of his stake in the company (more than 1 Million shares).

Again those statistics that are glaring and obvious deserve our attention as traders. The smaller transactions we can all pass up, but these whales we have to keep an eye out for.

Remember the Enron scandal? Here is what the insider chart looked like for that company! Notice anything out of the ordinary as the stock started to peak.

What’s Your Take?

Add your comments below and let me know what your take on all this insider selling. Do you think these types of transactions help signal a bigger move in the stock later on or not?

Was this guy wrong in selling his company’s stock ahead of the Starbuck’s news?

  • Bill Place

    No he didn’t do anything wrong

  • Derrick

    Kirk – great article. I think, to your point, due to the paper work involved (I believe also that you have to give a certain amount of days heads up) that it is unlikely that he made the sale based on “insider information”. Even if, it was only 6% of his stake? That’s nothing… if it was say half or most of his position then I would be a little more weary. I think it was common knowledge that the stock was overvalued and it was a good time to take some profits. Now, what I really think is unethical insider buying/selling is the law out there that people in Congress can basically do insider buying/selling LEGALLY. There was a bit on this on 60 minutes that got some press but I doubt anything happened. It’s unbelievable that Martha Stewart went to jail for insider transactions and these politicians doe this legally. Absurd!

    • Kirk

      I completely agree – that’s why everyone in congress is rich when they leave yet slam the hand that feeds their wealth. Modern day criminals in plain sight if you ask me.

  • brian

    insider trading has to be one of the hardest things someone could get away with even for low level employees. heck, remember martha stewart case when it wasn’t even here own company stock ?