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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: Amy J who wrote (66107)	8/30/2004 9:48:14 PM
From: Jorj X Mckie	Read Replies (1) \| Respond to of 77400

It might be helpful to step into the shoes of the big corporate executive who has a lot of stock options, vested and unvested, when trying to figure out the relevance of a stock sale. Let's say that you are John Chambers. You are listed as have direct holdings of 2,000,000 shares of cisco stock. So, from our perspective, you have somewhere in the vicinity of $80,000,000 of your net worth tied up in CSCO stock. But from your perspective (as John Chambers), this is probably not the case. Does this number reflect all of your unvested and vested stock options? Without checking, I'm gonna say "ummmm, not bloody likely". Someone who is feeling really diligent can go look up how many options JC currently has that are vested and unvested. So if JC was to sell his entire direct holdings of CSCO stock for $80,000,000, we see that he has divested himself of all CSCO holdings. What he sees is that he has another 10 million vested shares and another 15 million unvested shares (I made those numbers up for the example) and therefore the 2 million shares that he sells are a normal diversification. And I assure you that stock option grantees factor in unvested options in their financial planning (many do set up collars to lock in a price before they are vested). From the perspective of a stock option grantee who has vested shares, it makes absolutely no sense to purchase shares on the open market. Their confidence in the company can best be judged by their decision to do nothing with their vested options or if they exercise to sell. Some will argue that exercising to own is a valid strategy as you would end up paying fewer taxes. I think I can put up a pretty strong argument that the risk does not make those savings worthwhile. Other factors.....stock option expiration. Is the executive in a use it or lose it situation? Is the executive buying a new mansion or gulfstream or island? Is it a Forced sale - Back in the 90s, CSCO's stock dropped a couple of points when a senior VP sold all holdings and exercised all of his vested options at the same time. The dollar amount was a very pretty number. But it spooked the market that he was selling. What the general population didn't know was that he was going through a divorce and the court ordered him to sell all holdings so that assets could be divided between he and his wife (yes, she got the whole 50%). In my opinion, sometimes stock sales by executives has a deeper meaning. And sometimes it doesn't. And for the most part, it is impossible to determine which is which. In other words, I consider executive sales to be completely unreliabe for making investment decisions in a company. However, I did find that unexpected resignations by the CFO had a very high hit rate for having valid fundamental indications about the company....and the stock. That being said, you truly have to admire John Chamber's timing on his February 2000 sale. But I would bet that it was on the recommendation of his financial advisors and not due to what he perceived from Cisco's business. Of course, this is pure speculation on my part.