Proof That Google Hires Smart People

A couple of readers have asked what I make of all that insider selling at Google (per Yahoo! Finance, in the last six months, insiders have sold nearly 10% of their shares).  Here's what I make of it:

Although I doubt Google employees would be shoveling shares out the door if they thought the stock was drastically undervalued, the fact that they are shoveling doesn't tell us anything we don't know already (that Google isn't drastically undervalued).  Rather, it tells us that Google employees are smart enough to avoid falling into the trap that ensnares many of their high-IQ brethren--the delusion that, because they were smart enough to become paper zillionaires they will be smart enough to figure out when the good times will end.

The fourth-dumbest mistake any investor can make is to keep all of his or her eggs in one basket.  The third dumbest is to make this mistake with the stock of an employer--because this single basket controls not only most of your portfolio but also your job. The second dumbest--a favorite during the late 1990s--is to exercise your options and then keep the stock (triggering a massive tax bill while maintaining the stock risk).  And the dumbest is to sell your employer's stock when you know something bad is about to happen.

Even if Google employees believe the stock is going straight to $2,000, in other words, they should sell stock every chance they get.  They will keep getting paid in options, so they'll still capture any additional upside, and it will be nearly three years until they can exercise all the options granted since the IPO.  So the mantra inside (and, perhaps, outside) the company's walls should be "sell, sell, sell..."

Comments

[brad]

as a google employee can you write out of the money calls using vested options to cover?

[Henry Blodget]

Unless there are specific provisions in Google's option plans that prohibit it (which there may well be), I don't know why not. Any financial advisers want to weigh in?

[JD]

A check in the hand is worth two GOOG certificates in the bush as far as I am concerned.

[Still Inside]

There are basically two reason why you'd sell any stock:

1. To improve your lifestyle.

2. Because you think its going to go down (or not rise as fast as some other investments, etc.).

Google worker-bees cashing in less than $10M to buy a home in Silly Valley is perfectly understandable, no matter what the company's prospects.

The only reason you'd unload $100s of millions is because you think its going down, our your advisor tells you he has a better place to put your money. Any good adviser will tell you to "invest in what you know", which makes your own company's stock about 5x more appealing than any other, all other things being equal. As such, the core management team dumping its own stock (at levels way, way above the "improve your lifestyle" level) cannot be anything but a BAD sign.

SI

[Victor]

It will be interesting to see whether Eric/Larry/Sergey renew their selling plan. I recall it only lasted 18 months and divested them of about 15% of their shares. If they decide to renew their plan and dump even more, well, they're not exactly sending a good signal to other investors. Especially because now they all have hundreds of millions in cash. Why on earth would they personally need more than that (in the short term)?

[mr fuckedgoogle]

actually, victor, they've got billions in cash.

people forget so quickly that the top 5 insiders at GOOG have sold over FIVE BILLION DOLLARS WORTH OF STOCK in the last 12 months.

that's billion with a "B"

[bronxite]

<>

That's a hurricane Kartrina, pretty much. Not bad for an AltaVista knock-off.

[smart?]

what's so "smart" about selling and being diversified, especially in 2006? any idiot watching mad money could tell you that 'pigs get slaughtered'. you'd be stupid and blind if you couldn't figure it out after seeing what happened to others. and if the google ipo was in 1999, these same smart insiders would've fucked it up just everyone else.