Insider Trading at GE

There is increasing talk of the possibility of a GE bankruptcy.  There is always a trade-off between risk and return.  Selling when there is a panic over a small probability of bankruptcy is foolish, even if in the end it turns out to have been a right decision.  The reason is that markets tend to overreact to panic-inducing news. According to NASDAQ's website, three stock analysts give it a buy; nine give it a hold; one gives it a sell, so the bias is somewhat toward buy.  The analysts may be right.

One quick gauge of the probability of a bankruptcy is insider trading activity.  If there is talk of bankruptcy in the executive suite, insiders are likely to be the first to know.  According to The Street, as of October 31, in terms of numbers of shares traded, insiders recently have bought 98,100 shares while they have sold 41,740 shares.  The bias seems to be toward insider buying, although the number of insider sells is greater than the number of insider buys.  There are more sells but larger buys. Perhaps the small trades are by insiders who are less inside.

The chief seller seems to be the HR executive,  Raghu Krishnamoorthy, who has made a series of small sells recently.  CEO Lawrence Culp has been buying.

Buying GE now is a gamble. (Of course, it is less of a gamble than it was last year, when there was no panic, and the stock was selling 2.4 times higher at $17.88--as opposed to $7.44 now.)  On the one hand, there is a chance of bankruptcy and a likelihood of further panic selling; the stock is down better than six percent today.  On the other hand, when there is a turnaround, much as happened with Chrysler in the early 1980s, there will be a nice leverage effect.