A record amount of shares
Elon Musk, Jeff Bezos and other CEOs and corporate insiders have sold shares in their companies for record amounts in 2021. Sales may pick up in December. Here's what investors need to know.
Insider sales of shares among large companies intensified strongly in 2021. CEOs and corporate insiders have sold shares for a record $69 billion since the start of the year.
According to InsiderScore, as of Monday, excluding sales by large institutional investors (such as mutual funds and corporates), insider sales increased by 30% compared to 2020 and the 10-year average increased by 79%.
Market experts point to the strong rise in share prices and the planned US tax hike for the wealthy as the main reasons for the record sales by insiders. When stocks show strong gains, many investors and insiders often seek to lock in profits. That said, quite often a large insider sale of a stock can be followed by a temporary decline in that stock's price in the market. Against this backdrop, there may be growing concern among investors about the potential risks to a company's future and the overvaluation of its shares.
Investors should be prepared that insider sales are likely to rise even more in December, as wealthy share holders may intensify their sales ahead of the impending US tax hike to avoid higher tax costs.
From 1 January 2021, both several states' taxes will rise and federal taxes for high-income earners may rise. The House of Representatives has proposed a new 5% income tax on income over $10m and 8% on income over $25m.
"Potential tax rates and code changes may have motivated some vendors at the federal and state level are a motivator for some sellers," said Ben Silverman, research director at InsiderScore.
The latest prime example of such big insider sales is Elon Musk, who sold his Tesla (TSLA) stock for a record $9.85 billion. About half of those sales by Musk are taxes related to the sale of options, and the rest are direct payments the CEO will receive in lieu of a salary.
Jeff Bezos has sold a total of $9.97bn worth of Amazon (AMZN) shares this year, four times his 2019 sales and far higher than his average sales rate of $1bn a year in previous years.
The research firm also noted large sales of shares by the founders of Alphabet (GOOGL, GOOG) and the CEO of AMC Entertainment (AMC).
