Insider selling is usually not a strong signal because insiders sell for a variety of reasons including the need to diversify their investments, to fund a large purchase, paying for a child’s education, etc. This has been confirmed by academic research over several decades and aligns with what I have seen during the last 12 years of tracking insider transactions every week. The only times I pay attention to insider selling is when insiders as a group are selling significantly more than usual as we outlined in the article Insider Weekends: The Pied Piper Is Heading Out Of Town last November and when insiders are selling despite a big recent decline in the stock.
The selling by Airbnb (ABNB) insiders despite the recent pullback in the stock caught my eye. Co-founder Joe Gebbia has been selling shares consistently over the last several months but he significantly increased his selling last week as outlined below. Airbnb has been near the top of my watchlist of 40 “broken growth” stocks and while I have started nibbling slowly, valuations still remain stretched especially in light of recent geopolitical events. We wrote the following in late January in our Insider Weekends post discussing the RV manufacturer Thor Industries,
What we saw in the markets this week was particularly worrisome because the sell off was broad-based and even asset classes with low correlations between them appeared to be down. We are currently seeing mean reversion in full swing. As market participants who have invested through multiple cycles know, mean reversion often overshoots the mean. In other words, stocks can go from “strong buy” to “screaming buy” to “how can it get any cheaper” before they bottom. We haven’t yet approached the screaming buy phase yet as folks are already lining up to buy the dip, which has worked very well during the last decade.
I don’t think we see the quick rebound this time like we did after the COVID-19 related drop in early 2020. With monetary stimulus and quantitative easing out of the picture, all we have left now is fiscal stimulus in the form of the Build Back Better infrastructure plan, which still needs to win approval in the Senate.
The only reason I am nibbling and scaling into positions slowly is because almost no one can call a top or bottom with any consistency. I made the mistake of staying bearish for too long after the Great Recession in 2008-2009 and missed some generational buying opportunities. Thankfully I did not repeat that mistake coming out of March 2020, but this certainly feels like a market more like the one we saw after the dot-com bubble burst and not like the quick pullback and rebound during the pandemic.