When the boss sells out

There are many things that can have an impact on the value of a share investment - from the industry outlook, the local and global environment, to a consideration of who the Directors and Executive Management of the business are and what their business track records are.

As well as the obvious issues, there are other things that will have an impact on the valuation and desirability of investing in a company from time to time.

One of these factors was well profiled in the NZ Herald article by Tamsyn Parker recently - The impact of when the boss/owner of a company sells some or all of their shares.

The main points were:

Good Selling:

There are some positive side effects to bosses selling.

Founders selling up chunks can make the stock more liquid allowing more shares to trade.

Selling out:

When an owner sells out shares, the share price can fall - it depends on the reasons for selling and how many shares a boss sells.

Reasons why they are selling:

Some management sell shares in a company because they have to pay back loans that were made to them as part of long-term incentive schemes.

But like regular people CEOs also have lives outside of work and may sometimes want the money to do a renovation on their home or buy other assets.

They may also get divorced and have to divvy up their assets with an ex-spouse.

Founder shareholders often have all of their money tied up in a company and if the share price has doubled or tripled in value and they decide to cash up some Lister says it is hard to judge them on that.

Not always a win:

CEOs, other management and company insiders only have certain windows for selling shares.

They can't sell the shares before a result or annual meeting is due and there is information they might know about which other shareholders don't.

As a result, sometimes when owners or the boss sells out, they would have been wealthier if they had held onto the shares (when the share price goes up/the company becomes more profitable over time)


It is worth reading - here is a link:


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