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How to Know if Your CEO Is Dumping Stock

By Tim Beyers - Jan 14, 2014 at 6:33PM

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A Fool introduces investors to the basics of insider buying and selling.

How can you tell if the CEO of a company you've invested in is dumping stock? Check the Form 4, Fool contributor Tim Beyers says in the following video.

For those unfamiliar, the Form 4 is an SEC disclosure required of board members and management teams of public companies when they buy or sell stock. All transactions are recorded in the SEC's EDGAR database, which is free to access and searchable by ticker, company name, and a variety of other criteria.

Checking up on your chief can be as simple as entering your ticker at EDGAR and then clicking the link for "insider transactions" in the upper left. That will give you a list of reporting executives, directors, and significant shareholders.

Let's take Netflix (NFLX 1.49%) as an example. The "insider" transactions page lists a number of reporting filers, with co-founder and CEO Reed Hastings at the top. His latest transactions include a sale on Dec. 26 and a stock award on Jan. 2. Clicking on the "4" next to each transaction brings up a landing page. Clicking again on "edgardoc.html" reveals the actual filings and assorted details.

In the case of the sale, Hastings parted ways with 15,238 shares that he had exercised via options granted all the way back in 2004 and that were due to expire in a week -- a smart stock move, all things considered. The document also shows that he owns more than 1 million shares via family trust.

In the case of the award, Hastings was granted 2,297 options to buy stock at a strike price of $362.82 per share. The options expire on Jan. 2, 2024. History says he'll keep them for much of that duration, winning (or losing) right alongside common Netflix shareholders.

Unsure whether the CEO of a stock you own is aligned with your interests? Check the Form 4s and report what you find in the comments box below. Or you can list a ticker and ask Tim to take a look. He'll be talking more about insider buying and selling in the weeks to come.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Netflix at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends and owns shares of Netflix. 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.

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