Seems like these mergers are the best for the head honchos who own the stock.
This statement is incredibly true.
However the quoted part in your post above is at best misleading, and at worst disingenuous (and by the way, I'm blaming InsiderInsights not you!). Lemme explain ... no, there is no time to explain, lemme sum up:
1. Top execs have TONS of stock and options. They very well may have 70% or more of their net worth tied up in the stock.
2. Yes, it shows "faith in the company" to hold stock.
3. However, it shows "stupidity" to tie most of your assets up in one thin (see: People who put 100% of their pension money in Enron stock).
4. These guys are selling OPTIONS. Short version for people who haven't dealt in this: an option gives you the right to buy the stock for a certian price. You don't actually put out ANY cash for the option, the company gives it to you. For instance, "you can buy 20,000 shares at 15. This expires in 2008." Suppose the stock goes to 50. I can then do what's called a "same day sale" of the options by paying the $15 per share, and then turning around and selling that share for $50, netting $35 per share. 35 x 20,000 = 700K, minus taxes... nets me around 400K. I put out ZERO cash and end up with 400K in the bank. Nice, eh? People get options all the time (nowadays it's typically execs, tho in the internet boom of 2000 lots of people.. including me... got em from their companies). The downside to options is that if the stock goes down to say... $10.. your $15 options are "under water" which is a synonym for "worthless." However, you STILL didn't pay any cash for em, so you have really lost nothing... and if the stock goes up, well, you make a big wad of cash. Changes to accounting practices have put a big slowdown on this practice, I believe.
5. Executives typically have a usual plan of selling stock options on a regular basis. This is fron Thomson Investor, regarding Griffiths's sales:
Code: Select all
GRIFFITHS JEFFREY W (20) 03/28/05 44.3168 O
GRIFFITHS JEFFREY W (13) 01/03/05 42.5478 O
GRIFFITHS JEFFREY W (27) 01/03/05 42.5478 O
Basically he exercised 20,000 options on 3/28, and 40,000 options on 1/03. This indicates a regular selling plan. Most financial advisors advise their rich clients to do this... regularly sell your options, and move the cash into more diversified investments. It's DUMB to keep holding that stock, he doesn't need to hold it to get rich... the frickin man is ALREADY rich. He needs to think more about preservation of capital. That's why he sells and reinvests it in other stuff. Oh, and execs like this can only sell at certain times of the year, probably once a quarter. So they can't try to time it and say "hm, I think the stock is going down next week, better sell it now" - no, they typically can ony sell 4 times a year, so they typically DO SELL then - end of March, June, Sept, and Dec (that'd be my guess from the dates above).
5. The stock has gone up 140% over the past year. This is a strong incentive to turn those options into DeLoreans, Multi-million manisions, and the like. Or maybe he got a new mistress. Or two. At any rate, there are plenty of reasons execs sell big wads of stock. And the reason is almost never "wow, I think this stock is gonna tank so I better dump it." (if that's the reason, then he'll be in jail in 6 months, given the SEC of today).
6. People complain when execs sell the stock when it's gone way up. Do they ever mention how the execs have sold it in the past at lower prices? I mean, the guy sold thousands of shares at 44 (see the above listings). I mean, it's 60 now, so he was dumb for selling back then right? ... Not if it's a regular plan of diversifying, no (and I am willing to bet someone back then posted something saying "we don't like seeing the executives selling stock when it's gone way up" because back then I bet 45 was the high for the stock).
7. The original quote: "I never like seeing insiders unwilling to hold shares long in the open market." - what a moron. He SOLD OPTIONS. THEY WERE NEVER SHARES. HE FLIPPED THE OPTIONS AND STILL HOLDS 23 THOUSAND SHARES OF STOCK (and probably thousands, if not hundreds of thousands more options). It's statements like that guy's that make most of those sites seem like they're run by crackpots, or people who don't understand two things about corporate finance.
So the executive summary is:
- stock has gone up a lot
- the execs have cashed out lots of options
- whee, they're rich
- InsiderInsight is run by morons
whew, I feel better now.
When all is said and done, there's more said than done.
