The Power of Insider Selling

Insiders in a company can be deemed as the Directors, Management, substantial shareholders or any Government entity in a government-linked company. When these groups of people are buying or selling the securities of their company, it signals many things.

When an insider is buying into a company, it can mean only one thing – that the person believes in the company and that it will deliver more value in the future, causing a rise in share price. When an insider sells a company, it can mean many things – he is taking some profit off the table, he needs the money for personal reasons or he knows something that the rest do not know. Insider selling doesn’t always equate the last point that the person is abandoning the ship. We need to employ critical thinking when an insider sells and not take everything at face value as reported in the media.

A few days back, it was reported that Temasek was looking to sell a 3% stake in Sembcorp Marine. When the news was announced, Sembcorp Marine’s price plunged around 6-7%. Today, fresh news from Dow Jones Newswire shows that the move has been completed. There could be many reasons for this sale. We would not know the actual reason unless we were involved in the sale. It is not necessary that Temasek knows something that the rest of us do not know. They could be realising profit. Even after the 3% sale, Temasek still holds a huge stake at 60.91%. I strongly believe that Sembcorp Marine will still continue be the world’s second largest rig-builder after Keppel Corp and that it will still contribute to a huge part of our GDP. Therefore, we need to employ critical thinking when it comes to insider selling and not panic with the crowd.

In conclusion, insider buying means only one thing but insider selling can mean many things. Discern why an insider sold and look for any red flags before following the captain in abandoning the ship. Any price dip when an insider sells could actually be a great opportunity to buy more at a lower price.

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