Folktales like The Pied Piper of Hamelin were often used to communicate important concepts in a simple story format that tended to stay with their young listeners or readers. What we are witnessing in a market that appears stretched by any metric you may choose to measure it with, is a Pied Piper heading out of town, selling significant amount of stock on his way out. The $6.9 billion sale of Tesla (TSLA) by its CEO Elon Musk last week exceeds the sum total of all insider sales we have seen in a single week for more than a decade. The sales started out with 10 separate SEC filings on Wednesday representing $4.98 billion worth of stock sold that we wrote about in a Twitter thread that night. Mr. Musk sold an additional $1.92 billion worth of stock according to a new filing late Friday night. I would be surprised if he is done selling.
At various times during Tesla’s journey, I have been both bullish and bearish the stock. Mr. Musk at various points has also pointed out that the valuation is stretched. The cars Tesla makes are undeniably fun to drive despite occasional problems such as the issue with the superbottle that cools both the cabin and the batteries. With a market cap of over $1 trillion, the probability tilts more towards it heading in the direction of $500 billion instead of $2 trillion, especially with insiders selling at a rapid pace.
Besides, Mr. Musk, others insiders that sold shares in November include his brother Kimbal Musk, who sold 88,500 shares worth $108.77 million and the Chair of the Board of Directors, Robyn Denholm who sold 25,000 shares for $28.54 million. Ms. Denholm exercised 25,000 options at a strike price of $52.38 before turning around and selling them.
I am not just concerned about this level of insider selling at Tesla but insiders as a group have significantly stepped up their selling. We wrote the following about their selling last week after they sold $6.65 billion worth of stock in a single week,
This is a very significant six-fold increase in insider selling even after we discount the large $3.33 billion sale of Amazon by Jeff Bezos. In over a decade of tracking insider transactions, I don’t think I have ever seen this level of insider selling in a single week. Just like the big spike in insider purchases in mid-March 2020 provided a strong buying signal, it would behoove investors to pay attention to elevated levels of insider selling, especially if it continues in the coming weeks.