I wrote about insider sales at my regular pointsandfigures.com blog today. There is much more to consider, especially when you think about opportunity costs, and the cost of human capital.
My friend Mike Gibbs is a professor of labor economics at the University of Chicago. He has done a lot of research on employees, employee behavior, corporate culture, and the inner workings of personnel at firms.
One of the points Mike always makes is if you work for a firm, you shouldn't also have your monetary capital tied up in the firm.
For example, most employees get stock option plans that reward them with company stock. Once that stock vests, employees should sell every share-especially if they continue to work for the firm. That's counterintuitive.
Why?
First, only top line C suite employee can actually make a huge difference in the outcome of the company. A great CEO is worth their weight in gold.
Second, Since you are investing your human capital in a firm, it makes sense to diversify your risk by putting your monetary capital somewhere else. Mike suggests a no load mutual fund that replicates the S+P utilizing Gene Fama's EMH.
In addition, there is an direct opportunity cost to both your human capital and monetary investment in a firm. You should try to calculate that and spread out your risk. As I said in my blog post at pointsandfigures.com, would you rather the employee left the firm, or have them sell their stock and continue working there? In many cases, human capital is much more important than monetary capital.
