Written by Keith Nielson
Directors buying shares can signal confidence in their stocks.
Intuition suggests that if a director buys shares in their own company, there´s a good chance the value of those shares could increase. After all, the directors know a lot more about their own company than you or I and no-one invests cash with the view to losing it.
If you think about it, monitoring director´s trades, with regards to stock picking, makes perfect sense. It´s like having a massive team of researchers who have an in depth knowledge of their company and industry.
So, do they really do better than the general market? The short answer is yes! A recent study which analysed 6,837 Directors´ trades over a four year period found that, on average, directors have outperformed the market by a factor of two.
Directors trading in their own shares have been increasing steadily over the years, but recent months have seen possibly the largest volume of directors buying their own shares ever. The depressed prices caused by the recent market crash are enticing many directors to snap up what they obviously think are bargains.
Gerry Harvey from Harvey Norman is one of these bargain hunters. He recently bought over $2M worth of shares at a market price of $4.55 per share. Kay Page, another director, picked up almost $700K on the same day.
This is after quite a bit of selling late last year which, in retrospect, looked like pretty good timing. Let´s hope they get it right again.
There are many other directors spending up big also. The ability to monitor directors trades could give you a head start when it comes time to choosing our investments.
