Director’s dealings point the way to a company’s success or failure?

Saturday, 21st March 2009 18:55 - by GedW

How true is the title statement? It is an established fact that following Directors dealings can be a winning investment tool, but only if the quality dealings are sifted out from those that are mere window dressing. Who better than the Directors to be best informed about their company and best placed to consider a safe home for their money? Over time, I have witnessed more times than not, Directors correctly calling the market with their trades. Each week, lists of Director trades are published, so it is quite easy to follow an individual company or sector pattern/trend. Check to see which Directors are buying, e.g. Chairman, Chief Executive, Financial Director. Another trick is to look for nice, neat round numbers and large sums being invested, and whether the buying Director is a new investor or topping-up their existing holding in the company. The latter may indicate that a team is being put together for a possible Management Buy-Out (MBO). Some Directors merely buy stakes as a result of their Board appointment. If there are Options being granted, read the terms to see if they are performance and/or profit target related as this is a useful clue about the future performance of the company. Finally, follow the money!!!