Fate Of The World, Weight Of The Rally Rests With Nvidia
A dearth of top-tier US data releases and the proximity of Memorial Day could make this a somnolent week for traders. Or as somnolent as weeks can be when there are hot, cold and civil wars raging.
But an otherwise languorous affair could get a shot of adrenaline mid-week, when Nvidia reports Q1 results.
This is the anniversary of the "guide heard 'round the world." A year ago this week, Jensen Huang loudly declared that the future might've arrived early. The narrative hasn't been the same sin
I am repeating my comment from the “Fed Chatter” article here, as this is a more appropriate venue:
Does the amount of insider selling at NVDA portend anything for the future stock price?
Ten directors, the Principal Accounting Officer, the Executive VP for Operations, the EVP & Chief Financial Officer, and the President and CEO have all sold shares in the past year. No insiders seem to be buying.
Coincidence? Maybe all these folks decided to have pools put in?
Do the watchdogs for insider trading have enough power to prevent these people from acting in their own self interest?
And I’m repeating my reply:
Not all insider sales are nefarious. Some are pre-planned / programmatic. And more broadly, I have an issue with this notion (not necessarily your notion, but just in general) that company executives shouldn’t ever sell shares. If you work to increase the value of a company, and your work pays off, you shouldn’t be castigated as some kind of villain when you cash in. What’s the point in working so damn hard if you can’t ever take some chips off the table? One argument for share-based compensation is to align incentives. If I’m going to be a bad guy whenever I sell, maybe I’ll just say “You know what? I don’t want shares anymore. I want an all-cash comp package instead. If the stock crashes, it crashes. I get my money either way.”
Also: Everybody, all day, every day, acts in their own self interest. If you delude yourself into thinking otherwise, life’s either going to be a long series of disappointments, or decades of self-deception to avoid coming to terms with the reality that self interest and self preservation outweigh all other concerns at the end of the day. The only exception to that rule is your dog. Your spouse, kids, friends, grandparents, employers, employees — everybody besides your dog — will generally rob you blind (figuratively or literally) if it serves their interests and those interests are pressing enough. There’s one more exception besides your dog: Stupid people. Stupid people put other people’s interests ahead of their own sometimes, and that usually ends up leaving them broke or worse, a situation they excuse by reference to karma and being a good person, which would be great if normative language wasn’t gibberish (it is) and if karma was real (it’s not) and if there was an afterlife where people were rewarded for acting altruistically (there isn’t).
All of that to say it wouldn’t bother me a single bit if Nvidia insiders were selling hand over fist. In fact, I’d be more worried if they weren’t. I’m not sure I want delirious GameStop “diamond hands” in the C-Suite at the most important company in the world.
(Best case for dogs ever.)
You could make a case for the dog also following its self interest as you’re the one feeding him, taking care of him and walking him to the park/the beach… 🙂
Can you expand this post into a monthly letter?
Have you calculated what proportions of their holdings have been sold?
Lazy check on figures from random site gives me approx 0.4% (rounded up) of total insider holdings were sold in last 12 months (haven’t bothered to check definitions of insider or anything else). A person by person breakdown might be more interesting.
From FINVIZ: https://finviz.com/quote.ashx?t=NVDA&p=d
The data shows which insiders, how much and when, but not as a percentage of their total holdings.
Thanks, that’s well formatted info.
Those look like low conviction trades to me. Probably fuelled by a discussion internally like “it’s probably wise to cash in a bit now after such a run up”. Happened at a place I worked, people ended up trimming way too early. Not saying NVDA won’t crater on Wednesday but don’t think this is a signal for that. Just my random Internet opinion.
In addition to the comments made above regarding the importance of aligning interests between shareholders and executives that result from share based compensation – issuing equity (shares, options, etc) instead of paying cash as compensation, is often less dilutive to EPS- due to the way the math works in calculating EPS.
Cash compensation is obviously deducted directly from net income, however, it is only when shares issued to executives are actually sold by the executives, that those shares get added into the outstanding number of shares and therefore, the denominator of the BASIC EPS calculation (the FULLY DILUTED EPS calculation accounts for all options/share grants that have been awarded, but not yet exercised).
There is no deduction to net income for share based compensation.
In many situations, including Nvidia, the company executes “share buybacks” to offset the additional shares that get added to the total outstanding share count from executives exercising their share awards. This minimizes, or completely offsets any dilutive effect on basic EPS.
In the case of Nvidia, if you look at the cash flow statement, you can see the amount spent by the company on share buybacks and if you track shares outstanding, the number of shares outstanding did not increase significantly between 1/23 and 1/24. As of 1/23 and 1/24, there were 2.47B and 2.5B outstanding shares, respectively.
Probably no one cares about this 🙂
That is quite interesting, and it helps me understand a little more about the process. My comment about insiders acting in their own self interest was not against executive compensation in general, but more specifically about selling shares ahead of earnings with the inside information that earnings will be a disappointment. SeaTurtle covers the effect of selling on outstanding shares while Petter Hansson covers the risk for this earnings period. Thanks to you both.