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Directors share performances
We’ve analysed the share performance of all transactions commented on on this website.
That totals comments on more than 100 company transactions, and over 350 transactions by individual directors, both executive and non exec, from November 2007 to February 2009.
If you had followed transactions by executive directors, where they were not accompanied by transactions by non execs, then the companies you would have bought or sold would have underperformed the market by 6%.
If you had followed transactions by non executive directors which were not accompanied by transactions by executive directors, then the shares you would have bought or sold would have outperformed the market by 9%.
These performance numbers relate to the share performance of the companies compared to the relevant index, and over the ‘holding period’, which may be from my comment to now, or earlier if I ‘closed’ the ‘view’.
The holding period amounts to very roughly 200 days, so these numbers are very significant on an annualised basis.
What about the number of directors transacting, does share performance have any correlation there?
Yes it does, a positive one. The greater the number of executive directors transacting at any time, the worse the performance. Conversely the greater the number of non execs, the better their performance.
I’ve weighted the share performance results with the number of directors transacting. The executive directors performance deteriorates by around a further 4 percentage points, and the non execs improves by a similar amount, calculated on a ‘per director’ basis.
Is this a suprise?
No, I suggested a divergence in performance of directors and non executive directors when I started this analysis 14 months ago.
Non execs have a much better understanding of the environment in which the company operates, and also of the valuation of the company shares, as they are able to ‘stand back’ and better analyse the environment.
Executive director share signals are clouded by disposals for tax, or buying shares to qualify for the incentive scheme. But they also have their noses to the grindstone, and therefore are less able to observe what is happening around them, to both their firms competitive position but also to stock market perceptions of their company’s shares.
This might also explain why so many executive directors bought into what they thought were cheap bank shares over the last 12 months. See Nils Pratleys article ‘Bankers lead way through the trap door’, which discusses this blinkered approach, and gives LTCM, Barclays and Yell as examples.
Is this a common phenomenon, or just apparent in bear markets. I don’t know. Most commentators, researchers, experts point to those with the most information, the CEOs, CFOs, making the best decisions. It may be that in recessions and bear markets, the individuals with a greater awareness are the non execs not the executive directors.
Time will tell.
If you require any further information, or would like to discuss these findings, please email me at followthedirectors@gmail.com, and I’ll get back to you.
If you manage institutional equities or hedge funds, then I am happy to provide a service analysing your equity portfolio on a regular basis.
Regards
Simon Winfield
http://followthedirectors.co.uk
followthedirectors@gmail.com
This must be a classic case of saying one thing and doing another. Hank Greenberg reportedly raised $129m by selling down his stake in AIG (AIG) whilst extolling the virtues of the company.
My view: ‘Actions speak louder than words’, the basis and reason for my analysis of directors dealings.
You must read FT Alphavilles article on this share sale. Click here.
I read with interest the report (link to Forbes article here) on the interview with Steve Ingham, CEO of Michael Page (MPI, 385p ) in Finanz und Wirtschaft where he was reported as saying that ‘Yes, he would consider selling the company at 600p’.
This is supported by historical director sales back in April and May 2007, which took place at between 560p and 580p. Those sales, in my view, indicated that the directors believed Michael Page to be fairly, maybe fully valued at those levels and at that time. The subsequent purchases in November 2007 at 280p, as reported below, would therefore indicate that the directors thought Michael Page to be undervalued.
Now we know the offer price, we need to find the bid price from Adecco. I would hazard a guess that an agreed deal would be possible in the high 400p’s.
‘Last Thursday, November 21st, the three amigos at Michael Page International (MPI), CEO Ingham, CFO Puckett and MD Dumon, stepped in to buy back shares they had sold only 7 1/2 months earlier at twice the price.
They each bought 170,000 shares at 280p. Puckett and Ingham sold on April 10th around 147,000 shares at 560p each. Dumon sold 428,000 shares on April 10th and May 4th at between 560p and 580p.’ (posted on followthedirectors on November 25th 2007, full text here).
For all comments on Michael Page click on the ‘TAG: Michael Page’ at the top of this post.
Disclosure: I have a position in Michael Page shares.
I notice today the big underperformer in Sydney today is Brambles (BXB, A$ 7.45).
Poor results and some spiel about weakening consumer spending in the US, and the fact that they still haven’t resolved the Walmart negotiations (see Bloomberg comment here).
Lets step back to my comments of March 23rd :‘Brambles directors have been buying through 2006 and 2007, at prices between 506p and 557p in 10s and 20s (thousands of shares). The stock peaked in October 2007 at 650p. Then, last week, Craig van der laan de Vries, ‘Group President of CHEP Asia Pacific’ sells almost 20% of his holding, 160,000 shares at 440p, raising £702,000.’
In fact since March 20th Mr de Vries has sold over 700,000 shares in Brambles, realising £3.2m (AUD $6.6m), and leaving him with only 130,000 shares (source digitallook.com).
Since my comments on March 23rd Brambles shares are down 23% in AUD terms, and have underperformed the local market by almost 20% !!
So, shareholders and investors, why didn’t Mr van der Laan de Vries tell us what was going on then. Maybe the board were hoping you wouldn’t find out about the pressure from Walmart, or that the slowdown resulting from a fall in consumer spending would go away.
I can only imagine things continuing to deteriorate for Brambles.
For previous negative comments on Brambles of March 23rd and June 2nd see link here.
Bloomberg publish a monthly summary of insider activity, usually on the first business day of the following month.
This list is quite useful in prompting further research, but bear in mind that Bloomberg don’t filter out the ‘Executive Share Plan’ (and similar) deals, whereby the director gets allocated ‘free’ shares usually dependent on group financial performance against set targets. Would you buy shares if there was a good chance of getting one share ‘free’ for every share you bought?
To link to the Bloomberg ‘Top insider buying and selling in July’ news article click here.
I questioned earlier this year why we’d seen a lot of activity in the Recruitment Sector (Michael Page, SThree, Robert Walters). Either things weren’t as bad as the market forecasts for economic slowdown were indicating (unlikely given the high sensitivity of the sector to any change in economic growth), or we were to ‘expect future merger activity within the sector’.
Patience is a virtue. Those of you who have been patient are now rewarded after todays bid approach for Michael Page (MPI, 346p) from Adecco (news comment from Bloomberg here).
Michael Page are up 15% absolute and up 30% relative to the FTSE 250 since my note of November 25th.
For past commentary on the sector click here: Recruitment Sector
Have a look at this article quoting some recent research by Digital Look.
They suggest that directors buys outweigh sells by 13:1, and believe this signals a likely rally in the UK market over the next three to six months.
I suggested in my note of July 25th that maybe the non exec purchase of £162,000 worth of shares in PureCircle (PURE, 241p) was a positive signal ahead of forthcomong Interim results in mid September.
It seems that the news came sooner than that, in the form of a major deal with Pepsico and Whole Earth for PureCircles artificial sweetener Reb-A (news announcement on PureCircle website here).
I might also suggest that the news was well known before it had been announced, as reflected by the 20% rise in PureCircle shares over the preceding 5 days.
I’m going to start to look more closely at using recent director dealing activity as a signal ahead of news. (I’m unsure about the reliability of what is essentially a long term signal being used as a forecast for short term movements in share prices. We’ll see how it goes shall we.)
All stocks listed below have news out next week.
All these stocks have seen director dealing activity which I have commented on. Click on the stock ticker to take you to the comment(s).
My favourite pick for positive feedback from an analysts visit is MISYS.
ENO neutral bid situation. Interims 13/5
ARM warm already had +ve Q1 on 29/4. AGM 13/5
CPG warm already had +ve trading update 27/3. Interims 14/5
MSY POSITIVE CEO, CFO, COO increased positions by 14%/50%/60% in late March. Analyst visit 14/5
AMEC POSITIVE CEO increased position by 50% spending £500k in April. AGM 14/5
CKSN POSITIVE CFO and CEO increased positions by 90% and 45% mid March. Trading Statement 15/5
III warm CEO Rea bought £500k on March 4th. Prelims 15/5
GFRM neutral already had trading update 1/5. AGM 16/5
All news dates are taken from Google Finance. They have not been verified with the companies themselves.
followthedirectors... a study of directors share dealings 