August 29, 2014

Director Dealings

Director dealings are used by some investors to add a sense of security to their share investments. Director dealings are simply what the name suggests, the buying or selling of shares from directors of a specific company.

Directors are allowed to deal in the shares of their own company, so long as they inform regulators as and when this occurs. However, closed periods exist, in which no director dealings can take place, usually for at least eight weeks before the results of a company.

What are the implications of Director Dealings?

Simple, a director who buys shares in a sizeable number at the full market rate may have great faith in the future of the company. They will know much more about the company than external investors, and therefore director buys can often be an appealing sign to investors.

Moreover, it would be easy to assume that directors selling shares is a ‘bad sign’. While there is a chance this is a case, some directors may be selling shares for any number of personal or lifestyle reasons. So always be careful, but for many investors, directors who are buying often provide the most hope.

Aspects to look out for

There is more to it, then simply looking out for which directors have bought and sold. By looking at a number of aspects related to the dealings, you are in a position to make a better analysis of the situation.

The first aspect is to identify whether director dealings have been made at full value, and not just purchased as part of a discounted option. The second thing is to identify just how many directors are involved in dealings, surely if large amounts of directors are buying shares at the same time, this represents a good feeling about the future of the stock.

Other considerations to make are the amount of shares purchased by the directors, for example a deal for £100,000 of shares suggests the director is more confident in than stock than a director who just invested £2,000 previously. Moreover, the size of a company can influence the perceived importance of director dealings. For example, some believe director dealings amongst smaller companies provide better insight than dealings at larger and highly valued corporations.

Final point

Director dealings are revealed everyday and are available to read about in some financial papers as well as a whole host of online websites. Generally speaking, the most insightful director dealings are those that are of high volume and high value, i.e. lots of directors have purchased shares at the full market rate.

However, like any method of analysis, director dealings are not without their critics and are by no means a definitive solution.