Did you know that when a company goes public, its insiders can't sell their shares for a certain amount of time? This is called the lock-up period. It typically runs for about six months, but it can be anywhere from 90 days to two years.

The purpose of the lock-up period is to offer outside investors some measure of protection. If the newly public company has some skeletons in its closet, for example, insiders who know about them can't act on their privileged knowledge and quickly sell shares before the public learns the bad news. Some companies set extra-long lock-up periods to show their faith in the company and to inspire confidence in public shareholders.

So if you've been checking for insider sales and haven't seen any for a newly public company that you have doubts about, don't take that as a necessarily good sign. The insiders may simply be preparing to unload many shares as soon as they can.

For more info on IPOs and how they work, read "The ABCs of IPOs" and our IPO FAQ.

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