Director dealings are sometimes used by investors as indicators on what shares to buy or sell. The logic is that a director in a company has the best knowledge on the respective company and therefore any dealings could be a buy or sell indicator. Here’s a couple of tips to look out for if an investors is considering factor director dealings into their share dealing decision:
- Understand whether the shares have been purchased by the director under a share options scheme and pay more attention to whether shares have been purchased at full market price rather than a discount.
- Identify recent dealings by a number of directors across the firm as this can be a positive sign.
- Ascertain the total holding of the director and understand how many shares they have purchased in relation to their salary and remuneration package. A higher proportion suggests that a director has greater belief in the company.
Additionally, directors selling shares shouldn’t be used as an indication for others investors to sell shares. A director may have sold their shares for any number of reasons such as asset diversification and to raise funds resolve a personal issue (such as divorce) .