Watching insiders is like participating in a weeks-long stakeout. You expect something to happen, but you don't know what. So you settle in, sip your coffee, and wait for clues to solving the big case.
Here, the "case" is direction: Which way is your stock headed? The "clues" come in the form of insider buying and selling action. Have a look at Microsoft (Nasdaq: MSFT) over the past year.
| Insider Rating | Modestly Bearish |
| Business Description | Maker of the dominant Windows PC and server operating system and the Microsoft Office productivity suite. Its recently released Bing search engine is beginning to gain traction against incumbents. |
| Recent Price | $23.25 |
| CAPS Stars (Out of 5) | *** |
| Percentage of Shares Owned by Insiders | 4.74% |
| Net Buying (Selling)* | ($1.66 billion) |
| Last Buyer (% Increase) | No purchases over the prior 12 months. |
| Last Seller (% Decrease) | Bill Gates, director |
| Competitors | Apple (Nasdaq: AAPL) |
| CAPS Members Bullish on MSFT Also Bullish on | Apple |
| CAPS Members Bearish on MSFT Also Bearish on | Dell (Nasdaq: DELL) |
| Recent Foolish Coverage of MSFT | A Double in 3 Months |
Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Aug. 18, 2009.)
*Open-market sales and purchases only.
What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times, they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.
Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.
The Foolish view: modestly bearish
Now is an interesting time in Mr. Softy's history. No longer a pure force of nature, Microsoft is partnering with Yahoo! (Nasdaq: YHOO) and Nokia (NYSE: NOK), among others, to try to beat Google.
We're years from knowing whether these efforts will be successful, but at least Mr. Softy is trying. What's troubling for a long-termer like me is Windows; it's the golden pair of handcuffs that Microsoft can't, but must, escape. A broad-based push towards cloud computing platforms and software makes Mr. Softy's Azure experiment a must-have.
Investors don't believe CEO Steve Ballmer will deliver. "While I own all the products, the lack of success in innovation with operating systems is worrisome," wrote CAPS investor Bartanen earlier this month. "Also, unclear what their 'cloud' strategy is and whether they can pivot from 'desk-based' computing to 'cloud.'"
If insiders aren't concerned, they aren't saying so -- but their actions might worry some. Gates has been a huge seller, but he's only one of five sellers over the past 12 months. Others include Chief Financial Officer Chris Liddell, director David Marquardt, Chief Accounting Officer Frank Brod, and Chief Operating Officer Kevin Turner.
I'm not sure there's good reason to worry. Microsoft's insiders own more than Apple's and Google's insiders do -- 0.75% and 0.47%, respectively. Also, most of the past year's sales by Mr. Softy's executives and board members have been small relative to their overall holdings. My gut tells me we're witnessing diversification -- nothing more.
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