In early November, Tesla CEO Elon Musk, an avid Twitter user, asked a question for his 62 million followers: Should he sell 10% of his stock in the electric carmaker?
The CEO, who is also Chief Executive of SpaceX, unloaded $9 billion in Tesla stock that month, and sold $963 million in Tesla shares this week. The stock has fallen 18% since Nov. 4, the week before Musk began his relentless sell-off.
While it might be unusual to poll Twitter followers on stock sales, Musk is one of many CEOs or founders who have dumped mega-chunks of stock recently. Insiders included Satya Nadella, a more conventional CEO than Musk, who sold a whopping half of his shares last month.
The Wall Street Journal reported on Thursday that insiders like Musk and Nadella sold $63.5 billion in stock this year - a 50% increase from 2021. According to Daniel Taylor, associate professor of marketing at the University of Pennsylvania's Wharton Business School, three main factors have contributed to the sell-offs. The tendency of insiders to sell when the market is high, inflation and pending tax legislation are some of the things that are included.
Taylor told Yahoo Finance Live on Friday that if you put all that together, you get this record selling.
While Wall Street was rattled on Black Friday by fears of a new COVID-19 surge, the market hit record highs earlier in November and shook off concerns about the new variant relatively quickly. Taylor noted that insiders like to sell stock when the market is hot, pointing to sell-offs right before the internet and housing bubbles burst. In the third quarter of 2021, as MoneyWise noted, hedge fund manager Michael Burry sold most of his U.S. holdings in the third quarter of 2021, as he predicted the 2008 crisis.
If the market is peaking, we might see more insider selling, as you see selling at peak and buying at dips, Taylor said on Friday. We also have record inflation in addition to that. If you're thinking about where to put your money, you want to make sure you don't lose any purchasing power. Of course, many people don't want to lose money to taxes. Insiders may be unloading stock in anticipation of President Joe Biden's Build Back Better Bill, which passed in the House of Representatives last month and now awaits a Senate vote. The bill proposes about $2 trillion in tax hikes on corporations and the wealthy, according to The New York Times. It also includes a tax on unrealized capital gains, meaning investors would have to pay taxes on money they made from stocks even if they didn't sell them.
Microsoft's home state of Washington has a capital gains tax that will go into effect next month.
Taylor said there are economic reasons why wealthy individuals might want to be selling right now, and that reasons may not apply to retail investors.