Should You Follow Eric Schmidt and Sell Google Inc (GOOG) Shares?

In a recent SEC report, it was officially announced that Google Inc (NASDAQ:GOOG)’s ex-CEO, Eric Schmidt would be selling over a third (nearly 42%) of his total equity share in Google.

“On November 15, 2012, Eric E. Schmidt, Google Inc (NASDAQ:GOOG)’s Executive Chairman of the Board of Directors, adopted a stock trading plan in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, and Google’s Policy Against Insider Trading. In February 2013, sales of Eric’s Google Inc (NASDAQ:GOOG) stock may commence under this trading plan.”

We are talking about the 10b5-1 trading plan here that allows a company insider to buy or sell company stocks at the time of non-possession of material non-public information (MNPI). The 10b5-1 trading plan basically maintains that insider stock transactions should not affect the stock market positively or negatively. That is why the plan commences well after the announcement of the Q4F12 and FY12 last month.

But what actually bothers me? There is a loophole in the plan. What if a person already is in possession of MNPI while adopting the trading plan? You might already know some “insider secrets” as early as in November last year and just wait a couple of months to sell out so that the innocent outsiders do not get any hint. A little more research opens up something even more disturbing.

The total number of insider purchases has been far lower than the total number of insider sales. Why is so? Is there anything brewing underneath? Is it a matter of shifting risks on each other’s shoulders?

Even SergeyBrin, one of the internet giant’s co-founders, has been actively divesting his shares at a steady rate, as it seems from the image below.

When the founders are selling stakes in the company, you have to look up and notice. Does this prove anything though? No. To know what might be going on inside, we have to peer through the “open windows” – the company press releases.

Digging Deeper Into The Financials

Here are a few highlights from the latest financial statements that might interest you as an investor:

1). Huge Unwarranted Cash Balance – When a company, even after purchasing another company for $12.5 billion in cash, still has cash balance of $14.8 billion left in the asset account, there might not be a reason to worry. But when you see that coupled with increasing investment in marketable and non-marketable securities (going well over $34.8 billion as of December 31st, 2012), you might wonder whether the company is not being able to find suitable avenues to invest. We all know that Google Inc (NASDAQ:GOOG) has been showing signs of maturity (as every tech company does), even though it operates in one of the most dynamic industries out there. If I do not hear any news of the “next big thing” in a quarter or two, SergeyBrin‘s action and subsequently, Eric Schmidt’s plan to do the same will hint at something else.