Be Alert to Directors’ Interests
There are many rules of thumb an investor learns early in their journey. One of these is that directors buying stock ought to be positive for the share price and directors selling stock is a red flag. The theory goes that directors are insiders and should have a better feel for how a company is travelling than us outside investors. Sure, there could be valid reasons for directors selling stock. But after years of hearing these reasons, they tend to become repetitive and sound more like excuses. “I have a big tax bill this year,” “I’m buying a property,” and “I’m going through a divorce” come to mind. If a company’s prospects are as bright as many annual reports would lead us to believe, surely these directors could borrow money to hold on to their shares. There seems to be no shortage of money around when directors purchase stock. I’ve never heard one say “I wanted to buy stock but couldn’t cough up the cash.” We test the theory with some examples from 2016. Read full blogpost (VIEW LINK)
Daniel joined Forager in April 2016 as a senior analyst / portfolio manager for the Australian Fund. He is an avid value investor having previously worked at Investors Mutual and MMC Asset Management. He has a Bachelor of Commerce degree...
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