On Schwab's Insider Sales

Charles Schwab (NYSE:SCH) announced today that CEO David Pottruck plans to sell shares "over time as part of a long-term strategy for asset diversification, as well as tax management." Specifically, Pottruck will sell stock acquired through the exercise of options granted under Schwab's options program. Those options -- granted in Oct. 1994 -- are set to expire later this year.

We've talked a bit about insider buying and selling in recent months. Either can be an indication of what insiders -- presumably, the people with the best information -- think about their stock's valuation.

At the end of August, Overstock (NASDAQ:OSTK) CEO Patrick Byrne bought $4.2 million of his company's beaten-down stock. In December, Schering-Plough's (NYSE:SGP) newly appointed CEO Fred Hassan said that he would buy $4.68 million of Schering-Plough, stating that his investment "reflects long-term confidence in the company."

I would view both as signs of strong leadership, if not necessarily indications that the shares are dirt-cheap.

In contrast, insiders sold Mandalay Resort Group (NYSE:MBG) nearly across the board, topped by CEO Michael Ensign and Vice Chairman Bill Richardson clearing out their positions without explanation. Curiously, business has been pretty decent. Early last month, I suggested that Mandalay shareholders consider selling the richly priced shares and look elsewhere, rather than stick around to find out whether something is wrong.

But, in my view, the case with Schwab's Pottruck is nothing to fret over. In all, the 1.47 million shares in the plan account for a mere 7% of his total stake. Once the sales are complete, Pottruck will still own about 20 million shares.

Last week, Schwab reported solid fourth-quarter results. The company showed a pick up in business, and said that it was on the acquisition prowl. If you own Charles Schwab and are comfortable with the valuation, not much has changed with Pottruck's announcement.

Give us your take on the Charles Schwab discussion board. Jeff Hwang owns shares of Overstock.com, and can be reached at [email protected].