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Is This a Red Flag for Google?

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"Insider trading" can mean a lot of things. It can be as insidious as a red flag of rats abandoning a sinking ship, or it can be as innocuous as someone cashing a paycheck. That's why you always need some extra context when it comes to why an insider may be unloading shares, whereas insider buying can typically only mean one thing.

The bigger the sale, the more eyebrows it will raise and the more that investors need to scrutinize the motivation behind the trade. That being said, Google (Nasdaq: GOOG  ) executive chairman Eric Schmidt is saying goodbye to Big G shares valued at nearly $1.5 billion; is it time for investors to bail too?

The company recently disclosed that Schmidt adopted a stock-trading plan in November of last year that may start this month. Under the plan, Schmidt is able to sell a portion of his holdings for long-term personal diversification and liquidity. He'll spread out his trades over a year to reduce their market impact.

At the end of 2011, he beneficially owned roughly 9.1 million Class A and B shares, representing about 2.8% of the search giant's capital stock and close to 9.7% of its voting power. He plans on selling 2.4 million Class A shares, leaving him with 6.7 million shares and reducing his ownership and voting power to 2.1% and 7.3%, respectively.

At Friday's close of around $605, those shares are worth over $1.45 billion. The vast majority of Schmidt's shares are the super-voting Class B flavor, which get 10 votes, compared to the single vote that Class A shares carry. Schmidt and co-founders Larry Page and Sergey Brin cumulatively own 92% of Class B shares, representing two-thirds of all voting power. Class B shares don't trade publicly, but convert to Class A upon sale or transfer.

Using that $605 closing price that values all of Schmidt's 9.1 million shares at $5.5 billion, Forbes estimates his net worth at $6.2 billion as of September. That means that his position in Google represents almost 90% of his net worth.

Meanwhile, Page, who has been CEO for just over a year, is the proud owner of almost 26.5 million Class B shares valued at $16 billion. Forbes pegs his net worth at $16.7 billion as of November, so he's even more concentrated. Brin's digits look nearly identical, with 25.9 million shares and a $16.7 billion net worth.

While the dumping of $1.5 billion in company shares sounds a tad ominous, in the context of what we mere mortals can piece together about Schmidt's personal financials, it's entirely reasonable to want a little diversification. After all, if almost 90% of your net worth were tied up in one company, wouldn't you want to broaden your horizons?

Add Google to your Watchlist to keep up with its insider transactions. While you're at it, check out this new special free report on a handful of component suppliers that are cashing in on Android's rise.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 21, 2012, at 11:10 PM, funspirit wrote:

    Thanks for this article. Good to be aware of what Google's insiders are doing.

    Based on the amount of his net worth, and the relative amount his shares are worth of that total, i would agree, not as big a deal as it might be if it was 80% of his net worth. Good to keep apprised of the situation though :)

    for a look at how tech has supplanted gold as a store of value (also on Motley Fool, try here-- Why Your Gold is Worth(less)- Google It ....

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