The “news feed” under stock symbols at sites like Yahoo Finance can be useful to track recent business developments, earnings announcements and commentary from analysts like Motley Fool. But occasionally there are “headlines” for reports about insiders selling shares that at first blush look like a big unloading, especially if there’s a bullet point lineup of multiple insiders that have sold in recent months. If the share price is taking a dip, a story like this can panic retail investors who might think something fishy is going on and react by selling their holdings. Before you do something rash, there’s a quick way to see what’s really going on:
Rule 10b5-1 Permits major holders to sell a predetermined number of shares at a predetermined time. Many corporate executives use 10b5-1 plans to avoid accusations of insider trading. — Investopedia
To check on what type of buying or selling insiders are doing, go to docoh.com and then input your stock symbol. For the column under 10b5-1 there will be a Yes or No to indicate what type of sales have been happening. If the majority of recent sales are a Yes, that means they’ve been scheduled in advance and there’s nothing to worry about.
Let’s take a look at an example from Magnite (MGNI) where GuruFocus posted a story on March 12 with the headline that CFO David Day sold close to $1M in shares and then listed a bunch of other Magnite insiders who also sold:
https://finance.yahoo.com/news/magnite-inc-mgni-cfo-david-021507191.html
This could be easily viewed as alarming to the casual reader, but with a fast check at docoh.com you find out that the majority of those sales (including the one mentioned in the headline) were scheduled 10b5-1 transactions set up in advance. So this isn’t an ominous trend of spontaneous sell offs from insiders at Magnite:
https://docoh.com/company/1595974/MGNI
This begs the question: why run an article like this without mentioning the 10b5-1? It could be that bots post stories whenever there are insider transactions, no matter what type. Or maybe some hedge fund wants to buy on the cheap and pays a faux “news service” to post a story like this to scare retailers into selling their shares. There is no proof of anything of course, but on March 12 when the GuruFocus story posted, the share price of MGNI was at $49.21 and then by Monday March 29 it hit a recent low point of $38.84 for a drop of nearly 21%. The rest of the ad tech market also got hit, but the article certainly could have helped propel a Magnite sell off; stop-loss triggers for retail investors activate at 10% down and 20% down, flooding the market with cheap shares. Then private equity whales swim over and buy ‘em up (which is what happened March 31)… conveniently right before the start of the second quarter beginning April 1.
“It’s time we stop. Hey, what’s that sound? Everybody look, what’s going down?” –For What It’s Worth, Buffalo Springfield