Billionaires Selling?

Mar 1, 2024
Billionaires Selling?

Whenever Possible, It's Useful To Understand the Motivations For a Stock Sale

Hey Jeff, could you address the recent billionaires selling lots of shares of stock (i.e. Walmart, Bezos, etc.) I think a lot people are fearing a crash. I still own a lot of the stocks that you had recommended from Brownstone and not sure when to sell here. Not much guidance other than looking at the RSI for me. As I don't really trust Colin. Thanks. — Dustin M.

Hi Dustin,

This is a tough question for me to answer with any specifics, because I’m not able to give any individualized investment advice. And every insider transaction really needs to be researched to understand the context of the sale. Without doing so, we can’t really form an educated opinion about the sales.

Whenever possible, it is useful to understand the motivations for a stock sale. Is the purpose to “get out” because they see a crash? Or is it to fund other investments? Or is it part of a regularly scheduled plan that the executive has put in place to sell a certain amount of stock every quarter?

Executives who have access to material, non-public information often use SEC rule 10b5-1 plans to regularly schedule sales — or purchases — of their company’s stock. This is done to avoid any appearance of making sales based on insider information that may affect the share price one way or another. 

One thing that the SEC looks out for is when an executive sets up a plan with a major sale or purchase, and then the stock suddenly moves days later. That’s can look very suspicious, especially if it results in a major profit for the executive.

But some executives set up these plans that run for years. For example, selling off stock in equal amounts every quarter over a five year period. In cases like this, executives are likely just diversifying their wealth so that they are not overweight in just their company’s stock.

As for Bezos, there is quite a bit that has been made public about the reasons for his sales. It’s well-known that Bezos has long sold at least $1 billion a year in Amazon stock to fund Blue Origin, his aerospace company.

More recently, Bezos has sold $6 billion of Amazon stock in just a month, which is by far larger than most of his sales. He has indicated that he may sell as much as 50 million shares of stock. But not only is he funding Blue Origin, he is also funding his $10 billion Earth Fund, which he launched in 2020.

So Bezos clearly has reason to raise capital, given his other projects. And it’s a good time to do so with Amazon at nearly a $2 trillion valuation.

One of the best metrics that we can use right now to determine if it is a good time to sell is if a stock is supporting an exorbitant valuation.

Let’s take NVIDIA, for example. I love the company. I recommended it back in February of 2016 at just $24 a share. Today it is trading at $818 and a $2 trillion valuation.

But at that valuation, it is trading at about 32-times annual sales. I could never recommend investing in a semiconductor company at that valuation metric. AMD for example, another company that I recommended, is also trading at its peak. Its EV/Sales is 13.6 right now, which is also very “expensive” but nowhere near where NVIDIA is currently trading.

These stocks may go higher, but it’s just driven by this bubble in a few hot AI stocks. And they will definitely fall big in the months to come. Valuation multiples like this never last. It’s just hedge funds taking advantage of retail investors who usually end up holding the losses while the institutional capital takes money off the table.

And yet, I remain concerned about a major credit event that takes the markets down in a major correction. Debt levels are completely out of control, interest rates remain high, and the government has been manipulating key economic data, all of which is deeply concerning.

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