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Don’t Panic, Capt. Mainwaring, When Directors Dump Their Shares.

By Malcolm Stacey | Monday 8 September 2014


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Hello Fellow Dabblers: Be careful of taking director dealings too seriously. I know it doesn’t give us a very secure feeling when we see that the director of a firm has sold a bag of shares.

You would expect a top knob to have first knowledge of when a company was about to hit big trouble. And wouldn’t the first thing he or she would do in such a dire circumstance be to off-load a load of personally-held stock?

But if you had thought so about Ashtead (AHT) to take just one example, and you had sold your shares because directors were selling, you would have lost a lot of money.

The share price kept on rising after the sales and later figures showed just how well this renter-out of building gear was doing. Pretty well.

I’ve no idea why directors sell shares in their own company when the figures indicate that the share price should rise higher in the near future.

But is it because all sorts of private and confidential reasons could be involved?

Perhaps the director is about to buy a yacht and needs a bit of cash to do it. Everyone can run out of cash, even if his or her business is about to hit the big time in the most dramatic fashion.

And what if a director starts buying oodles of stocks in his firm? Does this mean we should also buy stocks, expecting that the big cheese knows something very favourable, which nobody else does?

No, because he or she could just be buying stock to make us all think we should buy it, too – when facts currently hidden from us indicate the opposite.

My advice is never to ignore director dealings, but not to utterly rely on them, either.  Events in Shareland are never as easily interpreted as that.

This is well-known in the Punter’s Return.

Malcolm Stacey has been writing about shares for more than 20 years. His first book "The Armchair Tycoon" was first published in 1998 but a revised 2014 e-version is now available. To obtain a FREE copy fill in the form HERE


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Comments

3 comments

  1. I suppose in an ideal world a large and sudden offload by a director should be interpreted as being due merely to personal reasons, and – if anything – actually inspire confidence (because share price collapse soon after would whiff so strongly of insider trading)!

  2. Just posting to add that I would now be wary, however, about investing in any stock in which none of the directors had ever had a significant holding, but that’s different.

  3. Hello Spaggers. You are so, so right about directors not having significant holders. This is more common than most of us would expect – and shares in such a company should be avoided as much as reality tv


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