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If a company's directors are buying more shares of their company, should I take it as a signal that they value the company well, and I should follow them and buy shares in that company? The only reason I can see as to why a company's directors would buys shares is because they think they will go up in price. So would it be a safe strategy to follow their buying?

Likewise, if I see a company's directors selling shares of their company, should I also sell my shares? I am curious to know why a company's directors would SELL their shares in their own company? Is it due to slower earnings growths etc.?

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  • If they are buying/selling shares, you would not know of it until it is too late, i.e they are done buying/selling. These operations are conducted in extremely discreet ways. And if some director tells you he is going to buy/sell and you act on that info, then you are on the wrong side of the law. – Victor123 Mar 16 '14 at 16:31
  • Studies have actually shown, that if you track insiders trades you can make an abnormal profit; even though they are not legally entitled to trade based on their insider information (non public information). How to track them in practice might be hard considering the time lack between the trades and the public announcement. Will try to find the published paper on this subject. – ssn Apr 7 '18 at 17:15
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It is not clear when you mean "company's directors" are they also majority owners.

There are several reasons for Buy;

  • There are only few time windows regulated by Law; when Directors can buy shares as they would have inside info
  • They want to increase owner's capital to avoid hostile takeovers
  • If the price is down, boost it by showing that they still believe in fundamentals of the company by buying large quantities

Similarly there are enough reasons for sell;

  • Take out part of the profits
  • Re-Balance individual's portfolio
  • Use the cash to start another venture

Quite often the exact reasons for Buy or Sell are not known and hence blindly following that strategy is not useful. It can be one of the inputs to make a decision.

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  • +1 "exact reasons... not known" It's definitely something to be aware of, but you don't know if someone is just cashing things out because they have inside information, or have a new house they want to build, or are getting divorced and have to pay bills. – THEAO Dec 6 '13 at 9:29
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You can learn very little from it. Company directories are often given share options or shares as a bonus, and because of that they are unlikely to buy shares. When they sell shares, you'll hear people shouting "so-and-so sold his or her shares, they must know something bad about the company".

The truth is that you can't eat or drink shares. If that company director owning shares worth a million dollars wants to buy a new Ferrari, he will find that Ferrari doesn't give free cars to people owning lots of shares. He actually has to sell the shares to get the money for the car, and that's what he does.

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2

A pattern of high level people buying or selling is a sign, positive or negative.

An individual, not so much. He can be selling to diversify, trying to keep his investments from being all in the company. He can be selling to pay his large bills. Same reasons any of us might be selling an investment to have cash to use.

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0

This could be another reason. "Companies buy their own stock in the market place to reduce the number of shares outstanding, and thus boosts the earnings per share. It also boosts the stock price, which benefits management that has stock options. "

Taken from this article. http://www.forbes.com/sites/investor/2014/01/06/the-most-reliable-indicator-of-an-approaching-market-top/

and this article "Why are stock rising?" may help as well. http://www.forbes.com/sites/investor/2013/12/23/why-are-stocks-rising/

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  • 1
    A director buying shares is very different from the company itself buying shares. – chepner Apr 7 '18 at 15:44
-3

When an executive insider sells shares in his or her company, they are valuing the money more than the shares. That means, they are either purchasing something near and dear to them (a house, a car) and can't afford it on salary or savings alone (a bad sign for an executive who should be making a high enough salary for these purchases) OR they don't think the shares will grow in value greatly.

When an executive insider purchases shares in his or her company, they are seeking future profits or more control or both. They value the shares more than the cash they are holding. It's that simple.

You can certainly find out about insider trades of public companies (they are all disclosed) and they pretty much reveal the insider sentiment. If a bunch of insiders are doing the same thing (buying or selling), you better believe that's a trend, and you have learned something about the company. Good luck, and happy investing!

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  • 1
    I think your answer is pretty bad, but my sentiment is a comment, I wouldn’t embed it in my own answer. By the way, the question is 4 years old. – JTP - Apologise to Monica♦ Apr 7 '18 at 1:25

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