It all comes down to taxation.
Due to the recent increase in taxes and lofty shares prices, CEOs, as well as corporate insiders, have been selling their stocks. Thus far, a record of $69 billion has been offloaded by high-profile business people.
The list is long. It ranges from Satya Nadella at Microsoft to Jeff Bezos and Elon Musk. CEOs, founders, and insiders have been cashing in their stock at the highest place so far. In fact, 6th December saw insider sales go up by 30% compared to 2020 and up 79% versus a 10-year average. And according to InsiderScore/Verity, this doesn’t account for sales from large institutional holders.
Sales are expected to go even higher, where December is an active month when it comes to tax planning.
Some market watchers think that insider selling is a warning sign. However, a lot of stock that was sold by insiders like Tesla and Amazon continues to surge even after selling. Most of this stock was sold as a part of scheduled plans, known as 10b5-1 programs.
Top sellers this year include Musk and Bezos with $10 billion offloaded. Ben Silverman, research director at InsiderScore/Verity said the top four “super sellers” — Bezos, Musk, Mark Zuckerburg, and the Waltons — equal 37% of the total this year. Commenting that “the presence of ‘super sellers’ during the period has helped pump up sales total.”
What High Profile Sellers Are Doing
Musk sold $1.05 billion in Tesla stock the previous week as part of his tax payment and options exercise routine. Musk’s stock sales have reached $9.85 billion thus far since his famous November poll. Half of that amount was for option-related taxes and the remaining amount was cash-outs.
Jeff Bezos sold off $9.97 billion in Amazon stock this year. Oddly enough, this didn’t match his activities last year. This year’s sales are 4x greater than his 2019 sales and are also much larger than his $1 billion sales in prior years. Filings at the SEC show the sales are part of a 10b5-1 plan.
The Walton family sold off $6.18 billion in Walmart stock through investment vehicles and family trust. This tends to be standard within the family, keeping company ownership levels in check, while funding philanthropic projects.
Mark Zuckerberg sold $4.47 billion this year. Google founders Sergey Brin and Larry Page have each sold $1.5 billion of their Alphabet shares as part of 10b5-1 plans.
Selling programs aside, taxes and high valuations further drove sales levels. For example, Satya Nadella CEO at Microsoft sold almost 50% of his shares at Microsoft the last month at almost $285 million. The company said in a statement that the sale was for “personal financial planning and diversification reasons.”
However, Nadella will be able to reduce taxes when he decides to sell now and not next year, where at the beginning of Jan. 1, Washington will have a 7% tax on capital gains over $250,000. This way Nadelle will save nearly $20 million in taxes. Bezos is in a similar boat, saving nearly $700 million in state taxes because he sold before January.
Tax Increases Coming Soon
There is a predicted federal tax increase for high earners in the coming year. It will result in many CEOs cashing in before the law’s announcement.
This in fact is already underway. The House just proposed a new 5% income surtax for $10 million+ brackets and 8% for income exceeding $25 million.
“Potential tax rate and code changes at the federal and state level are likely a motivator for some sellers,” Silverman stated.