There are a lot of things you can control when it comes to investing, but also a lot of things you can't. One on the "can't control" list is when a company insider sells shares. Very often you won't even know about the sale until after it has already occurred, meaning you can't be proactive, only reactive.
There are exceptions though. For instance, JPMorgan Chase (JPM 0.06%) announced that its CEO, Jamie Dimon, plans to sell 1 million shares of the company's stock in 2024. This offers a rare chance to think about what this insider's sale means ahead of the actual event.
There are lots of reasons to sell
Before looking at the specifics of JPMorgan, it is important to consider what selling stock means more generally. Company insiders often accumulate stock via stock grants included in their compensation packages. The benefit of this is that it makes them shareholders, aligning their long-term goals with the goals of other shareholders. If you are a shareholder in a company, having a high percentage of insider ownership is probably a good thing.
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But CEOs, CFOs, and those just a little bit further down the chain are all human beings. Like you, they have lives to live beyond work. If a large percentage of their compensation is paid in stock, they may need to access that store of wealth if they want to buy things. That's unlikely to include groceries, but it certainly might include cars, boats, and houses. It might also be a source of funds for supporting philanthropic efforts, or to pay for things like a lavish wedding, a bar mitzvah, or a quinceanera, among other things. So selling shares may just be the insider's way of living a full life.
There's another wrinkle here, since high-level employees have often spent a long time in the companies they lead. A huge amount of their wealth might be tied up in stock, completely destroying the notion of portfolio diversification. If the imbalance gets large enough, it might simply be a good financial decision to offload some company stock to reduce the concentrated exposure.
Life events can also play a role (more on this below). If a high-level employee is leaving a company, then they may want to cash out. It's one thing to maintain a huge exposure to a company you help to run, suggesting at least some level of control, but it's another to do so when you don't have any say at all. This could be particularly true for someone looking to venture out on their own, since the stock sale could provide seed money for a new business.
As you watch insider sales, you need to think about these types of things. But you have to juxtapose that against something a little more mundane. Perhaps the insiders think the stock is trading hands at rich valuations and they are just trying to time the top. A clear sign of this situation might come from a lot of insiders who are all selling at the same time. On the flip side, insiders may have the inside scoop on bad news and are trying to sell before it hits the market. Again, lots of selling at once might be a warning sign.
Thinking about JPMorgan
It is a bit odd for an insider to announce a stock sale ahead of time. So the news that Jamie Dimon was selling 1 million shares of banking giant JPMorgan stock in 2024 deserves some thought. For starters, given the number of shares, you'll probably want to know how many shares he owns. According to the last proxy statement, Dimon owns 9,275,212 shares and stock units. So selling 1 million shares means he is paring his ownership stake down by roughly 10%. So this is a big move, but perhaps not as gigantic as it first seemed. Dimon will still have a huge investment in the company he runs.
One of the first questions raised on Wall Street was about CEO succession, given that Dimon is old enough to retire if he wanted. The company said that this was not an issue, but investors should take that answer with a grain of salt. Perhaps it isn't an issue right now, but Dimon is getting older, and he could be starting to prepare for retirement within the next few years. It is worth keeping this in the back of your mind. That's doubly true given that this is reportedly the first material stock sale he has made since joining the company.
It is also worth noting that the announcement stated that it was Dimon and his family selling the shares. It is really just him, but it suggests that the sale is meant to serve a larger purpose in his life and his family's life. The diversification theme would seem to ring true here. It isn't hard to believe that he is looking to get a head start on selling down his massive JPMorgan stake as the 67-year-old begins to at least start thinking about life after JPMorgan. It is also possible that the thought process here includes estate planning issues.
The big takeaway is that this is likely an innocuous event, for now. But investors should probably be thinking about Dimon's longer-term plans given his fairly successful tenure at JPMorgan.
Often sales mean nothing, but sometimes they mean a lot
Investors probably shouldn't get too worried with regard to Jamie Dimon selling a modest portion of his JPMorgan stock. It likely isn't a signal of anything imminent or major. However, that doesn't mean that keeping this move in the back of your mind isn't valuable. It is quite likely that this is the first step the CEO is taking as he looks to prepare for a future life stage -- one that doesn't involve him working at JPMorgan. That could be years away, but with so much stock, starting to sell now might be the best approach for him and his fellow shareholders.
