Eric Schmidt to Sell $335 Million of His Google Shares
mashable.com
mashable.com
Back when Microsoft dominated the industry every year there would be similar stories about all of the Microsoft insiders who were selling shares. People who didn't understand would jump up and down. People who did, would know that it was entirely expected and a non-story.
In a few years you can expect to hear the same about Facebook.
But when insiders are buying shares, that can only mean one thing...
You just reduce the number of slices of the pie, so that each slice is a little bigger. There's nothing nefarious about it, it's one of many valid ways to allocate capital as long as they buy the shares at fair valuation (or better, when they are undervalued). You usually do that if you wouldn't get a higher return by putting that money to work somewhere else.
Insider buying is when the insiders themselves spend their own money on the stock. It's very difficult for them to successfully manipulate it upward--if they buy e.g. 5% of the outstanding shares, then to profit from their manipulation they have to sell 5% of the outstanding shares. The net result is likely to be that the stock ends up where it was, and the insiders have just paid their brokers a lot of money.
Also, what's artificial about this? It seems natural to me that if there are fewer shares outstanding, the price per share would go up (unless the company was knowingly buying them back for more than they're really worth). And "artificial" restriction in supply would be something like paying a group of shareholders not to sell for a certain period, to reduce the number of tradable shares. That stuff's usually illegal.
Other investors are often supportive of this as it gives them a profitable exit from the soon to rise stock.
On its own, less supply leading to higher prices is perfectly natural.
Imagine that there are 3 partners each owning a 1/3 interest in a firm. If the firm decides to buy out one of the partners with company money, and that the partner agrees to this, this leave the other two with a 50% interest in the company. Nothing wrong with that at all and nobody has been forced to do anything it doesn't want. It's not artificial, the stock prices are higher because each share is now a bigger piece of the comapny.
If there's one thing I learned from working in Yahoo during its crazy rise in the early 2000's, it's that you should sell when your founders / CEO sell!
Our stocks were almost doubling every 6 months, we thought we were invincible! Many of my colleagues joined when Yahoo stocks were at its highest, so they were holding off for more gain. I was lucky enough to have joined when it was close to its lowest at $9 a share, so I happily sold some. Boy am I glad I did.
If I set bing adcenter to decide my bids it goes to $14 - pretty insane. I think we might push a buck fifty margin once we make our first sale. Exciting stuff.
The article cites the idea of diversification - which at face-value seems harmles - , but is this a lack of confidence in the stock? Diversification implies to minimize risk, and that is reasonable only if Eric Schmidt thinks that there is significant risk that Google will underperform market (or at least his expectation of return in a different investment). Unless he has a specific purpose in mind with his extra cash-flow, I would imagine this can only reflect poorly on Google's future expectations.
Here's to hoping that Eric Schmidt only wants to live extravagantly for next couple of years.
Example: pick the stock in your portfolio that you are MOST bullish about. Why isn't every penny you own in that stock?
I don't think it's crazy for officers to sell some of their stock, you've got to convert what you built into cash at some point I suppose. Massive sell-offs are a red flag, but this is only about 6% of his shares, which shouldn't be concerning, especially with Google's sound financial fundamentals.
http://en.wikipedia.org/wiki/Kelly_criterion
Most likely, Eric Schmidt (and most founders/CEOs of big companies) have far more invested in their company than the Kelly Criterion would dictate.
It's also reasonable only if Eric Schmidt thinks there is even the slightest chance that Google's shares will go down at all.
This is almost a certainty. Almost all shares go down in price at some time.
What if he leaves the company to go work for a competitor, and to own those shares would reflect a conflict of interest?
I'm looking at you, Steve.
FTA he's not cutting a materially significant stake, but it's fun to speculate.
N.B. Just because insiders are selling shares does not make the stock a sale. The market's seen record sales from insiders during this entire market rally.
But I imagine it's for liquidity's sake. Why would he think that the thing he has the most control in would stop being the best thing to invest in? It's like someone who owns a bagel shop selling some shares to own part of a coffee shop down the way.
Unless there are things out of Google's control that are coming, which might change the valuation. Or more importantly, impact their profit potential/share value increase potential?
Because he knows he's fallible?
It's like someone who owns a bagel shop selling some shares to own part of a coffee shop down the way.
That might actually be a smart move.