Some of the biggest names in the corporate world sold a record $69 billion in stock in 2021 as share valuations surged to record highs, new data from Securities and Exchange Commission (SEC) filings show.
According to the latest numbers from InsiderScore/Verity, via CNBC, sales by chief executives, founders, and corporate insiders have climbed by 30 percent from 2020 to $69 billion. This is also up by 79 percent compared to the 10-year average.
Experts say that this figure is expected to swell in December, as this is typically an active month ahead of tax season.
A vast portion of the sales was concentrated among a few individuals, with Ben Silverman, director of research at InsiderScore/Verity, describing the top four as “super sellers.”
Tesla Motors Chief Executive Elon Musk was at the top of the list with $10 billion in stock sales. Former Amazon President and Chief Executive Jeff Bezos shed $9.97 billion in stocks. The Walton family cashed in on $6.18 billion in Walmart stock in 2021. Facebook Chief Executive Mark Zuckerberg liquidated $4.47 billion worth of stock.
Other big names were on the list as well. Google founders Larry Page and Sergey Brin each sold approximately $1.5 billion of their Alphabet shares. Microsoft Chief Executive Satya Nadella got rid of close to half of his company shares for roughly $285 million.
“The increase in the dollar value of insider sales in 2021 can be attributed to multiple factors, with historically high stock valuations being the primary driver,” Silverman said. “The presence of ‘super sellers’ during the period has helped pump up sales total.”
Should Investors Be Worried?
If leadership at publicly traded companies are selling stock, should retail traders and institutional investors be worried?
While some market analysts might consider insider selling to be a cause for concern, it might depend on how executives and board members liquidate their assets.
In this case, most of the sales were part of prescheduled selling plans, also known as 10b5-1.
In 1934, the SEC established Rule 10b5. This makes it illegal to defraud or mislead when performing transactions on U.S. exchanges. It was also created to restrict the buying or selling of stock on insider information that isn’t available to the public.
The SEC made an adjustment in the year 2000, known as 10b5-1. Regulators now permit insiders to come up with a trading strategy in advance of a trade if they put together a specific date or price to conduct a transaction.
This past summer, SEC Chair Gary Gensler announced that the regulatory body might update the rule. Gensler requested his staff to look into limitations on when and how these plans are canceled, share buyback reforms, and limits on the number of 10b5-1 plans.
The overall objective of this measure is to enhance transparency and to reduce misunderstandings of insider activity. Also, investors will know what to anticipate and when to expect an enormous stock transaction.
For example, the Walton family routinely sells their shares to fund their charitable endeavors and maintain a specific level of ownership. Bezos, Brin, Page, and Zuckerberg all completed these transactions as part of their 10b5-1 programs.
Some may choose to slash their holdings for tax purposes, according to Silverman.
At the federal level, lawmakers are considering a 5 percent surtax on income of more than $10 million and an 8 percent levy on income of more than $25 million. Cash-strapped states are also getting prepared to impose or raise a series of taxes to generate revenue.
According to a statement from Microsoft, Nadella executed the sale for “personal financial planning and diversification reasons.” Nadella is projected to save up to $20 million as Washington state is set to implement a 7 percent tax on capital gains worth more than $250,000 on Jan. 1.
Industry experts also say that some chief executives, especially those collecting a small paycheck, may want to sell shares and pocket the earnings. The top leaders might also desire to use the funds to either purchase a large asset or diversify their portfolios.
Could it also be the case that many see the writing on the wall?
Is a Correction Coming?
Now that the Federal Reserve is tapering its pandemic-era $120-billion-per-month quantitative easing program and potentially raising interest rates in summer 2022, a growing number of investors are anticipating a correction in the stock market.
In October, Bankrate released the results of a poll of market experts, revealing that more than half of respondents expect a double-digit decline in the financial market.
According to Bankrate’s Third-Quarter Market Mavens survey, 53 percent of the analysts think that stocks will “correct” by 10 percent or more from their highs. A third of the surveyed individuals believe a correction is overdue, and it could unfold anytime over the next six months.
But when a market correction happens is anybody’s guess, according to Patrick J. O’Hare, chief market analyst for Briefing.com.
“The truth is, nobody knows,” O’Hare said. “Given that there hasn’t been a 5 percent drawdown in more than 200 days, it’s not a stretch to think the market is due for a pullback of some note. Many individual stocks have already ‘corrected,’ yet the answer to when the S&P 500 will experience a correction likely rests on interest rates moving up and mega-cap stock prices moving down.”
One of the biggest long-term bulls on Wall Street, Leuthold Group’s Jim Paulsen, agreed that the financial markets are “way overdue for a correction.”
“We’re going to get one,” Paulsen said.
How big could a pullback be heading into 2022? Paulsen thinks it could be as much as 15 percent.
Whenever it happens, the catalyst for a sharp decline could involve a series of factors, such as significant leverage, excessive debt, unexpected news, or the removal of the punchbowl.