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On September 26th in ‘ITV directors dip their toes in the water- add to watchlist’ I noted purchases by three directors/senior managers at ITV (ITV, 39.5p) . I wanted to see further purchases before I bought the shares.
Over the last fortnight two non execs have also bought shares, in limited size, taking the number of directors buying shares to five.
Heather Killen, non exec, on October 1st bought 22,000 shares at 43p, initiating a position, and on October 9th Agnes Touraine, also a non exec, bought 100,000 shares at 37.5p.
Although these are relatively small purchases in $$ terms, it should be noted that all the five directors who have purchased shares (Griffiths- CFO, Fincham- Director of Television, Russell- Deputy Chairman, Killen- non exec, and Touraine – non exec) have initiated positions in ITV in the last month.
As a result of this, and the number of directors buying shares, the recent transactions act as a STRONG signal to investors.
View on ITV: POSITIVE- Directors buying shares
Strength of Signal: STRONG
Link to all comments on ITV.
On April 25th we saw Samir Brikho, CEO of Amec (AMEC, 525p), increasing his holding by 50% and investing close to GBP 500k ‘Amec– a difference of opinion CEO buys, CFO sells.’
On Friday October 10th Brikho bought a further 50,000 shares at 497p, investing GBP 250k, taking his holding to 232,000 shares.
Other directors have also been active:
October 7th Non executive Tim Faithfull buys 5000 shares at 533p, doubling his holding to 10,000 shares, and
October 8th, Jock Green-Armytage, Non executive Chairman, increases his holding by 50% by buying 5000 shares at 509p.
Also in September Ian McHoul, the new CFO, bought 9000 shares at 746p to take his holding to 60,000 shares.
In the three months after Brikhos April 25th purchases, Amec outperformed the FTSE 100 by 30%. They have now given up all that outperformance against the index, and with the share price near 500p represent another opportunity.
View of Directors dealings: Positive signal with three directors buying in the last week.
Strength of signal: Remains STRONG
For all Amec comments click here.
Back in May this year four executive members of the board (White, Farley, Kiloran and Bryant) of Persimmon (PSN, 377p) sold shares at 567p. Within eight weeks Persimmon shares were trading at 220p.
On September 30th we saw the first purchase of shares at Persimmon by the senior independent non executive director David Thompson. Mr Thompson invested almost GBP 80,000 for various members of his family by buying 20,000 shares at 398p.
Thompson increased his (and his familys’) holding in Persimmon by 50%, taking their holding to 60,000 shares.
These purchases don’t score highly on my ‘significance’ rating, because only one director is buying shares. I thought it worth recording though due to the size (GBP 80k) and the increase in shareholding (50%).
View of directors dealings: Positive- director is buying shares
Significance of the transaction: Low / Weak as only one director buying shares
In HSBC (HSBA, 790p) I see a strong, well managed, diversified global bank, with a higher exposure to the growth markets of Asia than its (now nationalised) compatriots on the London Stock Exchange.
I notice though the first significant signs of Chinese slowdown in the announcement on Thursday by Australia Iron Ore producer Mt Gibson (MGX, 71c) that their Chinese customers want to delay shipments.
In their statement (link to co website) Mt Gibson say ‘ Customer and iron ore sector analysis indicates a slow down in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities’.
Whose ‘credit facilities’ I wonder, the Chinese or their Western customers?
I also notice directors share sales at HSBC, wth a DD John, a ‘PDMR’ (senior manager but not group board member) selling 61434 shares at 907p on October 1st.
Reviewing other directors sales over the past twelve months I find sales taking place at between 766p and 884p between October 2007 and June 2008 totalling around 400,000 shares or GBP 4m. Directors who have sold include Hughes Hallett (non exec), Almeida (non exec), Green (Chairman), Flint (CFO), and Geoghahan (CEO). For full details go to www.digitallook.com or to the HSBC company website.
I wonder how long HSBC can weather the storm that banks in the rest of the world are currently embroiled in. I think the price levels at which share sales by six directors took place are a good indicator of a medium term peak level for HSBC shares.
Signal: Negative- Directors selling
Signal Strength: MEDIUM
October 17: Anecdotal information on the Chinese economy from a contact in Hong Kong:
Second largest Chinese port shows exports down 14% since July.
40% of the Chinese toy companies are now insolvent.
Also see: ‘Credit crisis casts gloom over China’s exporters’ (October 14th, Associated Press)
For subsequent comments on HSBC (November 10th and November 14th) see here.
In a week of severe stock market turbulence I come back from a week away to see swirling whirlpools stirred by uncertainty and panic.
So the question has to be: What do you and I do now?
I have three key memories that keep resurfacing which I want to share with you:
1. Yield. When I started my first job in the UK stockmarket in 1979, the key determinant of valuation was yield. Definitely not earnings. Nobody trusted earnings. Not prospective dividend yield either, but the historic dividend yield on stocks. Stock selection in the face of a recession needs to be based on the ability to survive. Choose companies that will continue to manufacture or sell their products because we need them in our day to day lives (I’m thonking food and healthcare), and value them using historic dividend yield.
Are these companies more likely to survive than your bank? Yes, probably. So maybe a dividend yield of over 7%, preferably nearer 10%, would be the levels to start buying.
2. Asset protection. I was in Argentina a couple of years ago, staying at a wonderful ‘loft’ apartment in Buenos Aires and talking about property values by the pool with a local who owned three apartments in the building. He said simply that investing your money in property is safer than in the banks. The banks can (and did) take it away. He didn’t own three properties because he was speculating on rising property values, he owned them because he believed them to be secure assets.
So that prompts me to think again about property as a secure asset, in that it will still be there next year, whereas your cash may not be.
What about Gold? Yes, it is secure, but I get that niggling feeling that if I buy gold now I’ll be the last to the party. Having said that, it may be worth owning only as an insurance policy for 5-10% of your assets.
3. Time to buy? These markets could easily fall another 30% from here, possibly in the next week! Where there is panic there is also opportunity, and we are getting closer to the opportunity levels. So do your research now and get your shopping list together. Then close your eyes, put in buying orders with strict limits, and above all don’t tell the mrs (or your partner)! Don’t use all your firepower, but start to drip money into the market bit by bit.
In October 1987 as the market plunged the experienced hands were saying use this as a buying opportunity, while the younger guys (including me) were panicking. Of course it was the wise brokers who had lived through the early 1970’s who were right.
Do we head for a depression? Maybe. We’re already in a (likely prolonged) recession. Nouriel Roubini suggests not a quick two quarters of negative GDP, but a prolonged 2 year recession (Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression). Either way diversification of your assets is key.
Lastly, turn the TV off and don’t get sucked overboard into the maelstrom. The turning points for markets are when your cab driver is talking about them. Remember 2000 when cabbies told you which tech stocks to buy? What are they saying now? (I’d love to hear- please write their comments in the box below).
Above all, follow your gut instinct. And Good luck!
My last post listed companies selected so far this year for a high level of conviction (or Strong signal) in directors buying shares.
Below I list companies selected so far this year for directors SELLING, where I believe the actions of the directors to be a STRONG signal for investors.
Those companies are as follows (for full comment type the stock name into the ‘SEARCH’ box to the left):
De La Rue (DLAR)
Savills (SVS)
Hargreaves Lansdown (HL.)
Carnival (CCL)
3i (III)
Connaught (CNT) (switch into eaga)
Cairn Energy (CNE)
followthedirectors... a study of directors share dealings 