Is the tech bubble about to burst?
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Insider buying is almost always a sign that the company is undervalued in the market. People inside the company are usually overweight on their employer's stock, because they receive it as compensation and usually will get enough of it that it's by far their biggest holding. If they want more of it, despite the risks to diversification that this entails, they must have a pretty good reason to believe that the company is doing better than the Street thinks it is.
Do you have data to back this up? I ask because the standard wisdom was that stock buybacks were a sign that the stock was undervalued. But it turns out, looking at historical data, that it was no better predictor of the stock price in the future than random chance.
Of course companies act for the well being of the company itself, while directors only for theirs, so yeah, insider buying by a company or a director is totally different.
My question is does the data bear it out (presumably the data exists) or is it just an assumption based on the idea that insiders _should_ have a pretty good idea of the value of the company.
http://books.google.com/books?id=iYuh-gfnwb0C&pg=PA361&#...
Basically, it seems that extreme insider buying is a very good sign for the market as a whole, but it's fairly rare. (31.7% returns in one three month period w/ insider buying signal, vs. avg. 4.2% returns in 75 3-month periods w/ insider selling signal)
In terms of individual stocks, it seems that the predictive power of insider buying as a metric is best when mixed with taking into account the company's dividend yield, and they claim that this gives you a 6.2% edge.
For individual stocks the difference is too small for me to feel comfortable.
Where there is an active market for private company shares open only to a limited group (employees, investors and other existing shareholders), potential sellers (employees & investors) have had reasonable opportunity to sell however much they want. Potential buyers, on the other hand, do not necessarily have the opportunity to buy. So if you are relating to the value a company would have a following an IPO, you would expect the value to rise. There aren't many new sellers at the internal market valuation price or lower (they could have sold before at that price).
How is that money moving out of the tech industry? Those shares of stock did not disappear when sold; someone else now owns shares of that company. Money changed hands in exchange for stock. That money did not leave the tech industry.
Think of it this way, Microsoft didn't raid its savings account and sell off office furniture to pay him. Another investor pays him.
http://www.goodwinprocter.com/Publications/Newsletters/Clien...
Specifically, I think the Small Business Jobs Act of 2010 can be used by founders to buy founder shares at a trivial basis in one or more corporations founded in q4 2010, built into businesses over the following 5+ years (possibly in parallel...maybe you work on one full time every day, and let a few sit idle with minimal involvement until later...). Then, provided the business capitalization is less than 50mm at exit, and your ownership is 10mm or less, you have zero federal capital gains or AMT liability -- I.e. You win at taxes.
http://www.quora.com/What-pitfalls-should-be-avoided-if-inve...
IANAL, but it seems any business so formed must be active in some ongoing non-services business. Still, I'm tempted to form a number of small corporations for each of my 'backburner' ideas, make a small investment, then hire occasional contractors to flesh out the ideas through R&D until they (or a closely-related idea) seems ripe -- perhaps years from now. Then, I'd devote myself full-time to it, and my founders' equity appreciation would remain subject to this one-time 2010 gain exclusion.
Question is: should you just do stupid-cheap WY/NV/etc. formations and then redomicile, or do the real $5-10k corps with full paperwork, agreements, etc.? Or would a top-tier firm/lawyer be willing to discount one principal/owner and 10 corps formed on the same day, in exchange for future business when those corps get used more actively, take subsequent investment, etc.?
It's not that bad though. People are dependent on technology that keeps getting smarter, faster, and simpler. Who is stopping any of us from spotting large unsolved problems and presenting our solution in product form? JUST DO IT.
We really are living in the best of times and the worst of times...
It feels like Facebook is constricting the unwary masses into a black hole that consumes their time and data. How can we compete for marketshare? Apple has come from almost dead to number 1 in a decade. They used to be hard to hate, now the fanboys are being seduced by the magic of Big Google. Big Google is doing everything for everyone all for free or very cheap, who could resist? It's the same approach that made Bill Gates the world's richest man. It'll probably work and Larry and Sergey can be the founding fathers of the singularity along with that Ray dude.
So...that's leaves us students and hackers alike to try to either come up with a new paradigm of technological innovation or build in their ecosystems for a living. There is a middle path of course, and historically speaking that is the best approach.
If this is what you love and part of your life purpose. Stick to this and don't live in fear. Just keep walking...
I know people who saw their net worth fall from $150 million to $30 million when the market collapsed last time. They've made much of it back and they may not exactly be broke but all the rich people that saw their net worth disintegrate last time around are not as interested in betting their entire future on the stock market after seeing the existing vulnerabilities of the system.
I have a feeling that a lot of this money (particularly from technology execs) will end up reinvested in other areas ... including startups. Such a theory would suggest that the bubble is still only beginning.
A 5% increase in capital gains tax in 2011 shouldn't be enough for this movement by these people. They should be planning on holding onto their stock indefinitely, especially at places like Amazon with no ceiling. Why aren't they?
What makes the recent trades alarming?
Is the current pattern of trades different from those of the past?
Even the reference to Ballmer selling $1.2 billion under the 'guise' of diversification, is not big news. Does anyone really think that MSFT is the sole best stock to hold? Ballmer can probably get better returns by investing in startups than by holding MSFT.
That he is diversifying his portfolio is merely the truth. What it doesn't communicate are the reasons, as CEO of MSFT he could negatively affect the price of their stock by giving any answer that belied an investing strategy in which holding MSFT stock was not the best idea. He's pretty much bound by fiduciary duty to his stockholders to give an answer which reveals nothing about MSFT.
Although unpopular right now, if you want to call a bubble, look at gold and other commodities, especially ones on which futures are bought and sold.
We don't have pets.com IPOs, we don't have a lot of public money flowing into the tech sector. Yes, there are deals being made privately, but presumably the companies buying them are buying them because the technology they created can be better capitalized by augmenting an existing tech giant rather than via an IPO.
If you want to find a bubble go look at who made tonnes of money in the real estate bubble and look for them pouring that money into a speculative market.