THE MOTLEY FOOL

ASK THE FOOL

Insider Selling

Q: An insider at a company I’m invested in sold tens of thousands of shares. Who buys those?

– C.R., Ann Arbor, Michigan A: When company insiders – such as owners, top executives or directors – sell some of their shares, they often do so in the open market, where any investor can buy them. If there are many more shares for sale than there are interested buyers, the price will drop until it reaches a point at which buyers will buy.

It's reasonable to pay attention to insider buying and selling for companies of interest, but don't overdo it: Remember that at many businesses, bigwigs get a large portion of their compensation in the form of stock, so when they need or want cash, it's common for them to sell some – or many – shares. It's worth finding out what portion of their total shares a given insider has sold – you can look up such information at sites such as Finviz.com/insidertrading.ashx.

FOOL’S SCHOOL

Kinds of Stocks

Stocks can be categorized in many ways, and different kinds of investors may prefer to focus on certain kinds of stocks. Here are some common types:

● Value stocks are those trading for less than their intrinsic value. They appeal to more conservative investors who demand a margin of safety. They often trade at relatively low prices because they're out of favor with other investors.

● Growth stocks are those of companies that are growing faster than average (based on metrics such as revenue and earnings). They're sought by more aggressive investors willing to take on more risk, buying stocks that may be overvalued.

● Blue chip stocks are those of wellrespected, steadily growing large companies, such as Bank of America, Coca-cola, IBM, Johnson & Johnson, Nike, Procter & Gamble and Walt Disney. They're generally regarded as safer than average.

● Speculative stocks tend to be risky, but they offer a small chance of high returns. They include penny stocks, stocks in emerging industries or economies, and rare-materials stocks. Some biotechnology stocks can be speculative if their success depends on drugs in development that are not yet approved.

● Income stocks pay dividends to shareholders, typically via quarterly cash payments. Favored by retirees and others seeking income from investments, they can be slower growers.

● Defensive stocks usually remain stable during economic volatility. Think basic needs: groceries, soap, medicines, electricity and so on. Consumers will purchase these items and services in good times and in bad.

Some stocks can fit several of these descriptions – perhaps being a dividend-paying defensive stock, or a fastgrowing value stock. It's worth spending a little time figuring out what kind of investor you are, and what kinds of stocks suit you best.

FOOLISH TRIVIA