Insider Trading Sell Offs Are Risky

In my experience, no one will work harder for you than someone who has a vested interest in your success. Sales people have know this for years, if you incentivize, smart people will find ways to win. This is why internal ownership at a company is something I look for (see an overview of my investment filters).

I like to know that board members and executives believe enough in the company to risk their own money. Internal ownership also tells me that we share a common goal- a timely and sustained return on investment. You might think that this sounds silly. Surely any business exec cares about the timely and sustained return on investment, but this is not always true. Some are too focused on a 10 yr plan and are willing to throw the medium term under the bus for the sake of longer and often loftier goals. This is unacceptable to me as an investor. 10 yr plans that come at the expense of today’s business rarely are necessary unless massive course correction is required.

Getting commitment on a sustained return is also challenging to get alignment, some execs will run a business like a pump and dump scheme, running up the company in the short term just prior to their exit and sale of their stock. I want to see an executive invest their own money and do it for the long haul  period.
I came across this page today, if you are just breaking for lunch you might find it interesting. While this presents a rather singular view (as an exec may own billions of dollars of shares and be selling off only a small section of their portfolio) I would argue that if you see one of your main holdings in here it should give you pause to examine further.

http://money.cnn.com/galleries/2011/news/1103/gallery.executive_stock_sales/index.html