Amazon.com, Inc. (NASDAQ: AMZN) has been one of the hottest stocks of 2020, gaining 72.7% year to date. Some Amazon bulls may have troubled to see headlines that CEO Jeff Bezos sold $3.1 billion worth of Amazon stock this week.
At first glance, it may seem concerning to investors that the person steering the Amazon ship is dumping billions of shares of stock. However, a closer look at Bezos’ selling reveals it has nothing to do with his outlook for the company.
What Is A 10b5-1 Trading Plan? Bezo’s $3.1 billion stock sale reported this week was part of a 10b5-1 plan.
SEC Rule 10b5-1 allows company insiders to set up regularly-scheduled stock sales of predetermined numbers of shares on certain future dates. One of the advantages of 10b5-1 trading plans for executives is that it allows them to sell their shares over time without being accused of insider trading associated with major news events, such as partnership announcements or sales updates.
In other words, Bezos’ big sale was planned well in advance and it has nothing to do with Amazon’s business or share price. In fact, Bezos sold $1.8 billion in Amazon stock back in February and $1.8 billion in August of last year.
Despite Bezos’s selling every six months, Amazon shares are up 80.9% overall in the past year.
AMZN Chart by TradingView
The Important Numbers: The $3.1 billion number may seem alarming to investors, but it’s far from a firesale for Bezos, the world’s wealthiest person. Not only is Bezos’ net worth $191 billion, he still owns $170 billion worth of Amazon stock after the recent sale. In other words, selling $3.1 billion of Amazon stock reduced his total holdings by a little less than 1.8%.
In general, insider buying is much more of a bullish indicator for traders than insider selling is a bearish one, especially when the selling is 10b5-1 plan selling.
There are countless reasons for executives to sell shares of their companies’ stocks, especially considering how many of them have stock-based compensation packages.
Benzinga’s Take: Given Bezos’ history of selling, Amazon investors can expect another round of headlines about him selling billions of dollars of stock sometime in early February 2021.
Instead of worrying about the sale itself, traders should watch for any changes to Bezos’ selling patterns that would suggest he is selling off larger chunks of his Amazon holdings or even possibly adding to them at some point.
Written by Wayne Duggan for Benzinga