Should We Take CEO Buying and Selling Seriously?

🌟🌟🌟It  is good practice to track CEO transactions as a form of due diligence  as it adds more information in addition to traditional analysis and helps me to make more informed decisions on buying, holding or selling a particular stock.

While tracking a CEO's buying and selling of a stock can provide me with valuable insights it is not the most important metric to assess a stock.

There are also various factors as to why a CEO choose to buy or sell the company's stock.  It could be personal financial needs, tax planning, portfolio diversification or planned asset allocation.  

From my standpoint, it is more important to look the company's financial statements  and other important metrics.  These would be questions on how the company is positioning itself for growth and profit.  Are its products or services in demand and why?    How is the company performing relative to its peers?

Take for example Nvidia's CEO Jensen Huang has been reported selling his shares of Nvidia.  According to filings with SEC, Jensen Huang sold USD 322.7 million worth of his company's shares in July and has sold nearly USD 500 million in stock this summer.  The sales are part of a predetermined trading plan he had filed in March 2024.  This plan relates to a Rule 10b5-1 agreement which allows executives and employees to buy or sell stock on their own company without violating insider trading laws by using a predetermined schedule.

According to the filing, Jensen Huang owns 3.79% of Nvidia's shares amounting to 93 million shares prior to the sale.  So in effect, the shares that Jensen Huang sold are miniscule when we look at the larger picture.

What is more important is that Jensen Huang has built Nvidia to what it is today - A Tech Giant with a market capitalisation of USD 3.11 Trillion.   Nvidia went public on January 22 1999 at USD 12 a share.  At the last closing price of USD 126.46, Nvidia's share price has jumped 316,050%!

It is a testament to Jensen Huang's vision and hardwork that Nvidia is where it is today because of him.

In contrast, Intel CEO Pat Gelsinger has bought shares of Intel on the open market after the stock slumped.   $Intel(INTC)$  plummeted on August 2 after it suspended its dividend and announced 15,000 job cuts.  Intel also announced disappointing 2nd quarter earnings and guidance.  Shares continued to slip, hitting a low of USD 18.95 on August 7, a level Intel stock last traded  in October 2010.

It has been over 3 years since Pat Gelsinger has served as Intel's CEO but now Intel's shares are trading at their lowest level of his tenure.  Intel is now facing headwinds that are steady if not stronger than ever before.

Comparing Intel and Nvidia - 2 Semiconductor companies is like chalk and cheese.  The contrast is stark between the performances of the 2 CEOs - Jensen Huang and Pat Gelsinger.

So while it is important to monitor the Buying and Selling of stocks by the CEO of a company, it is even more critical to monitor the company's performance and fundamentals.

As I look forward to $NVIDIA Corp(NVDA)$  Q2 24 earnings report which is due on November 28, I am so grateful that Nvidia has Jensen Huang for its CEO, knowing that it is in  good hands and that Nvidia will continue to thrive in the future as AI will be the next industrial revolution.

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