Insider Monkey
11 Overvalued Stocks Insiders are Dumping Now
Fahad Saleem
9 min read

In This Article:

In this article, we will take a detailed look at the 11 Overvalued Stocks Insiders are Dumping Now. For a quick overview of such stocks, read our article 5 Overvalued Stocks Insiders are Dumping Now.

Wise investors almost always keep track of corporate insider activity because paying attention to insider sentiment has proven to be a successful strategy several times in the past. For example, when markets were wavering amid the coronavirus crisis, insiders started piling into stocks like crazy in March 2020. In just about 20 days insiders bought $1.19 billion in company shares. Later events proved that they were right. Markets were quick to roar back to new highs driven by stimulus packages and rising consumer spending. Insiders were also selling in November 2021, when the Federal Reserve was getting ready to start cutting interest rates.

Tracking Insider Buying and Selling: Performance Through the Years

But should you always look towards insider sentiment to guess what’s coming next. Are insider bets always right?  Some data points show that if you keep paying attention to insider sentiment without incorporating outlier or black swan events, you’d face surprising results. In January 2023, for example, the Wall Street Journal said in a report that insiders were not expecting a rebound because they weren’t buying shares of their own companies. The Journal’s analysis at that time was based on insider buying to selling ratio which ticked up in June 2022 but then started to decline without any major increases. The report at the time also cited Nejat Seyhun, a finance professor at the University of Michigan, who was worried that insiders were not buying despite prices coming down to very low levels. Seyhun said that this indicator was a “warning” about things to come. The WSJ report also said that insider sentiment started to decline in November and December 2021 since in these two months shares of “almost twice as many companies were sold by insiders as were bought.”

But were insiders right? The S&P 500 at the end of January 2023, when insider sentiment was down, was at 3,824.14, while it ended the year at 4,769.83. The AI-led rally that surprised the financial markets was really an outlier event and we are still seeing its effects without any end in sight.

Similarly, in May 2022, insiders were brushing aside recession warnings and piling into stocks. Bloomberg, citing The Washington Service, at the time reported that 1,100 corporate executives and officers had bought their company shares in May through May 23. The S&P 500 closed the month of May at 4,132, while at the end of the year it was at 3,893.

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