Stock Tips from Company Executives

I think most people know better than to take stock tips from their friends these days. In a world where information is distributed so quickly, what are the odds that your pal found some information that everyone else missed? They aren’t very good. But what about company executives? When they tell you or a friend of yours that they are really excited about their stock, should you buy? No!

First of all, let’s be clear. I’m not talking about insider information coming from company executives. You shouldn’t trade on that either, but that’s a different story. I’m talking about someone in upper management who is just really enthusiastic about the growth of the company. You shouldn’t trade on their excitement. Here’s why – it’s unreliable.

Company executives should be excited about the direction of their company. They are responsible for setting it. They need everyone at the company to be excited about it in order to meet their goals. That doesn’t mean they will achieve them. And if they do, it doesn’t mean that information wasn’t already priced into the stock.

Let me give you two examples from earlier this year. In early January I heard from a client that Mosaic (MOS) executives were expecting great things. The price of the stock when I heard that was $28.60. Three months later it is down 6%. The S&P 500 Index is up 15% over that same time period.

In late February I heard that the CEO of General Electric (GE) was going to be sure to hit his incentive targets, which would mean great things for the stock. GE shares are down 14% since then. The S&P 500 Index is up 4%.

I advised both clients who brought that information to me to ignore it. Thankfully they listened. Hopefully you do too.

Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.