Insider buying is often regarded as a bullish indicator as few people should know a company better than its own directors.
The theory is that if they have the confidence to buy shares, it could be a sign that things are going well and they expect them to appreciate in value.
Conversely, when directors sell shares it is often regarded as a bearish indicator as you'd be unlikely to sell shares if you felt they were about to increase in value.
With that in mind, here are two shares which have recently experienced notable insider selling:
Pilbara Minerals Ltd (ASX: PLS)
According to a change of director's interest notice, the managing director and CEO of this lithium miner, Kenneth Brinsden, has sold shares on-market recently. The notice reveals that Mr Brinsden offloaded 869,565 ordinary shares on March 28 and 7,385,000 ordinary shares on March 29. The CEO received a total of $6,245,642.14 for the shares, equating to an average of 75.7 cents per share.
However, the company advised that its CEO and his related entities sold the 8,254,565 ordinary shares in order to fund the exercise of 15 million options that were exercisable at 40 cents and due to expire on May 16.
Smartgroup Corporation Ltd (ASX: SIQ)
A change of director's interest notice reveals that this fleet management and salary packaging company's managing director and CEO sold 1.1 million shares through an off-market trade on Tuesday. Mr Billimoria received a total of $8.36 million for the sale, equating to $7.60 per share. This sale has reduced his holding down by 27% to a total of 2,952,764 shares.
The CEO advised that the sale was made for personal reasons. He said: "I have elected to sell down a minority portion of my shareholding for personal reasons. I remain a long-term shareholder and as ever am excited about, and fully committed to, Smartgroup."
I feel that this is a reasonable explanation and wouldn't be too concerned. After all, with a remaining holding of 2,952,764 shares, his interests remain firmly aligned with shareholders.
