U.S. executives and directors sold $70.5 billion of shares in their companies this year, 55 percent more than in 1999, with Microsoft Corp. officials leading insider sales for the fifth year in a row.
Microsoft co-founders Bill Gates and Paul Allen together sold $10 billion of stock as the software maker’s price fell 61 percent. Microsoft officers accounted for 15 percent of total sales, according to the Washington Service research firm.
Selling was dominated by officers of computer-related and Internet companies, including Dell Computer Corp., Ariba Inc. and Brocade Communications Systems Inc. The pace of selling surged as the Nasdaq Composite Index rose to record levels in March before plunging more than 50 percent as the economy slowed.
“The technology guys are jumping ship,” said Louis Navellier, president of Navellier & Associates Inc., who manages $6 billion in assets. “The Internet is an absolute disaster. They are crashing and burning.”
Shareholders say they don’t like to see insiders sell large stakes because it erodes confidence in a company’s prospects. In addition, owning a stake can help motivate management and directors, some investors say.
Purchases by so-called insiders executives, directors and big individual investors fell for the first time since 1995. They bought $3.27 billion of their companies’ stock during the year, 21 percent less than in 1999.
The largest buyers were from telecommunications, broadcasting and tobacco companies, including cigarette maker Philip Morris Cos.
The figures for buying and selling are as of Dec 23.
‘Lack of confidence’
“It wasn’t irrational at all to sell,” said Henry Asher, president of the Northstar Group, which manages more than $150 million in assets. “There was a lack of confidence in valuations.”
Many Internet-related stocks were fetching more than 100 times their per-share earnings, historically high valuations that couldn’t be sustained, Asher said. Even with the Nasdaq’s decline, the index trades at 99 times earnings.
Insider sales rose to the fastest pace in more than two years in the second half, as corporate profits slowed to the smallest gain in more than a year.
Executives and directors made 2.2 sales for every purchase in the eight weeks through Nov. 8, according to Vickers Weekly Insider Report, which tracks the moves reported to the U.S. Securities and Exchange Commission. That’s the fastest selling pace since June 1998.
“There’s a reliable degree of prescience among insiders,” said David Coleman, editor of the Vickers Weekly Insider Report.
Even so, persistent selling doesn’t necessarily mean a stock is headed for a fall. Executives may sell some of their holdings to finance a home purchase, to diversify their investments or for other reasons.
In recent years, technology companies’ insiders have done the most selling. The companies tend to use stock options rather than big salaries to compensate employees. That can leave top executives with much of their wealth tied up in stock and options.
Microsoft sales
Insiders at Microsoft sold $10.5 billion of stock, more than seven times the sales of any other company. Executives and directors at Dell sold $1.4 billion, at Brocade Communications sold $1.1 billion, and at Ariba sold $953 million.
The biggest individual seller was Allen with $8.5 billion, followed by Gates with $1.5 billion and Michael Dell, chief executive of Dell, with $1.1 billion.
Gates has a regular program in which he periodically sells a small fraction of his Microsoft holdings to diversify his investments, said Caroline Boren, a company spokeswoman. Allen, who said in September that he would resign from Microsoft’s board, left the company’s day-to-day operations in 1983 to pursue independent investments.
“Paul Allen clearly wants to create his own investment identity away from Microsoft,” said Asher, who said Microsoft accounted for about 1 percent of his client portfolios.
Dell has said its CEO regularly sells shares, which are small in proportion to his total holdings. Officials couldn’t be reached for additional comment.
Tobacco buyers
On the buying side, insiders at Philip Morris, the largest tobacco company, were among the most active, with purchases of $91 million. Insiders at cigarette maker Loews Corp. bought $122 million of its shares.
Philip Morris was the top-performing stock in the Dow Jones Industrial Average, rising 95 percent this year after investors said the worst of the legal concerns appeared to be over. The stock rose after cigarette makers were hit with a record $145 billion punitive-damage award in a class-action lawsuit filed by Florida smokers.
“The Florida case was the lightning rod,” said Tom Russo, general partner of Gardner Russo Gardner, which owns about 2 million Philip Morris shares. “There was a sense by the market of its ultimate reversibility.”
Other large buyers included insiders at media company Entravision Communi-cations Corp., who bought $383 million in shares of the U.S. Spanish-language broadcaster; and insiders at AT & T; Corp., who bought $88 million in the largest U.S. long- distance company.
Those purchases have yet to pay off for insiders.
Entravision sold shares in an initial public offering at $16.50 in August and were trading at slightly below that price last week. AT & T; shares have fallen 67 percent this year as competition intensified in the long-distance market.
Bloomberg reporter Will Edwards
contributed to this article.
