Directors' dealings

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3. Two premises and a fallacy

Two premises....

1. The people running a company know more about its performance and prospects than anyone else.

   They know:

   • when there has been a technological breakthrough
   • when an important contract has been won or lost
   • when major liabilities have arisen
2. In buying and selling shares they are motivated by their desire to increase their own wealth and not by altruism or a desire to succour the market.

1. It follows that when you spot a director buying shares or selling shares, you should follow suit

It's a fallacy because although it works some of the time, it's simplistic. If you followed that rule all the time, you'd be clean bowled as often as you scored a six.

Seasoned observers have learned that the signals are more subtle, and that you have to apply a more sophisticated analysis to directors' dealings to get the best results.

1. What are directors' dealings? 2. Distinction from insider dealing 3. Two premises and a fallacy 4. Size of transaction 5. Who knows best? 6. Safety in numbers 7. Dealings in the context of recent share price 8. The closed period 9. Follow the leader 10. Sales can sometimes be a good sign 11. Playing the percentages 12. Other factors 13. Conclusion

• Beyond the Zulu Principle