Don't look now, but Amazon.com (AMZN -1.44%) CEO Jeff Bezos just liquidated a big chunk of his own company's stock.
As SEC filings confirm, over the span of just two days in August Amazon's boss sold off $3.1 billion worth of his Amazon shares through a prearranged 10b5-1 trading plan. The first question that probably comes to mind when you hear that is: "If the CEO is selling, should I sell, too?"
Here are three reasons why I think the answer to that question is "no" -- or at least "not necessarily."
Reason 1: Bezos didn't sell -- the calendar did
If Jeff Bezos decided to suddenly dump $3 billion worth of stock on the market right before an earnings report, or right before Amazon released the sales tally from "Prime Day", then I could see how some investors might find that disconcerting. It would raise suspicions the CEO was trading on inside information -- and getting out before some bad news hit.
But that's not what's happening here at all.
These sales were conducted pursuant to a 10b5-1 trading plan, which eliminates the possibility of trading on non-public information because it automates the sales. An executive selling under a 10b5-1 trading plan commits to selling pre-approved numbers of shares on pre-scheduled dates. Thus, it was the calendar that decided it was time for Bezos to sell his shares -- not the arrival of bad news.
Reason 2: Buy low, sell high
And here's another bit of evidence: According to SEC filings, Bezos conducted his stock sales in four large lots over the course of two days, selling stock at prices ranging from $3,120.70 per share to $3,150.09. But just two days after his final stock sale order was filled, can you guess how much Amazon's stock was selling for?
According to data from S&P Global Market Intelligence, on Thursday, August 6, Amazon stock closed at a share price of $3,225 -- nearly $75 above the best price Bezos got for his shares. (And as of this Thursday, the stock is still trading $10 above the CEO's sale price).
Clearly, Bezos wasn't dumping stock ahead of bad news, or in anticipation of a big sell-off.
Reason 3: Context is everything
So why did Bezos sell? Why does anyone sell? As a general rule, we sell stock for one of two reasons: We need cash, or we see a better investment that we'd rather be in.
In Jeff Bezos's case, both these reasons may be true.
Following in the footsteps of space pioneer and fellow billionaire Elon Musk, you see, Bezos is building his own space company -- Blue Origin -- in an attempt to help mankind become a multi-planetary species. Such grand ambitions don't come cheap, however, and as the Amazon CEO admitted a few years back, to finance Blue Origin he currently has to sell "about $1 billion of Amazon stock a year and ... use it to invest in Blue Origin."
Now admittedly, $1 billion is barely one-third of the value of Bezos's stock sales this month -- and barely one-seventh of his total stock sales this year. But cut the guy a break. In addition to building a space company from scratch, he's also dealing with the aftermath of a 2019 divorce that entailed a $38 billion settlement. You don't need to know the specifics of his financial situation to imagine how that might have put a strain on his finances, and encouraged him to up the rate at which he converts stock into cash via the 10b5-1 trading plan.
For that matter, even $7.2 billion worth of Amazon stock only amounts to about 2.3 million shares at the stock's Thursday share price of $3,161. Even after this year's sales, Bezos still owns 54 million Amazon shares. Theoretically, Jeff Bezos could sell $7.2 billion worth of stock a year every year ... and it would still take him at least 23-and-a-half years to reduce his holdings to zero, or longer if Amazon stock keeps growing in price at the rate it's been going.
At 56 years of age, Bezos may run out of birthdays before he runs out of Amazon stock to sell.