Directors' dealings

1  2  3  4  5  6  7  8  9  10  11  12  13   

11. Playing the percentages

Many successful investors, including Warren Buffett and Jim Slater, like to invest in companies where the directors have an 'owner mentality'.

• A director who has a sizeable stake is more likely to run the company in a way that increases shareholder value because his interests are aligned with those of other shareholders.
• A director who has no stake or a very small stake, is more likely to be concerned with his salary than with the share price.

Up to now, we have considered directors' dealings from a transactional point of view - that is, whether specific sales or purchases tell us anything about the director's view of the share price at that moment - but it is also worth stepping back a pace and considering the board's total holdings. In other words, whether the men in charge have more than just a professional interest in the success of the company.

To determine how much actual interest the directors have, simply add their holdings together and divide by the number of ordinary shares in issue.

Publications like REFs can provide this information for you.

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