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‘FSA targets insider trading deals’- BBC News May 6
Dear Hector,
I believe legitimate trading by company directors in their own shares to be a valuable source of information for the market as a whole. It has been shown widely that following ‘company insiders’ enables an investor to outperform the wider market. The information detailing those trades is quite rightly publicly available, enabling you or I to make our own decisions regarding its validity.
I believe that in the vast majority of cases where company insiders trade ahead of results or other corporate information they are ignorant of the FSA guidelines and stock exchange rules on directors dealings.
So Hector before you beef up your police force, if that is what you are doing, spend more time on educating company directors on the rights and wrongs of directors dealings. It will be a lot cheaper than investigating and taking cases to court.
I think however that when the press refers to your comments on insider trading they really mean ‘informed price movements ahead of merger and acquisition (M&A) announcements’ as per your newsletter of April 29th 2008 (see link here).
This is solely concerned with undisclosed trades made by individuals with knowledge of forthcoming M&A activity. Very very few disclosed directors dealings are of this nature.
In the protection of individual investors, and for the credibility of the London markets, I therefore fully support an ongoing vigilance over this form of market abuse.
Regards,
Simon Winfield
For other commentary see also the following:
Michael Gibersons of Knowledge Problem : ‘Would making insider trading restrictions optional for corporations suffice? and ‘Overview of Henry Manne’s ”Insider trading, Virtual Markets, and the Dog that Did Not Bark”
Chris Dillow at Stumbling and Mumbling: ‘Legalize Insider trading’
I want to recap here posts that I wrote last month, with the absolute and relative performance of shares to today. To see the original posts I am referring to, look for the title to the left of here, or type the company name into the ‘Search’ box.
April 3rd Diageo DGE 1055p NEGATIVE CALL -1.6% absolute, -7% relative
Negative call based on the news that CEO Walsh had sold £1m of shares, and upon reviewing his historical sales, found him to have excellent market timing.
April 7th Cairn Energy 2915p NEGATIVE CALL +5.4% absolute, +1% relative
Negative call on news that Non Exec Chairman had sold half his holding in Cairn
April 25th AMEC AMEC 752p POSITIVE CALL +9% absolute, +7% relative
Positive call on news that CEO Brikho had increased his position by 50%. buying £483k of shares
April 25th EAGA EAGA 135p POSITIVE CALL -13% absolute, -19% relative
Positive call based on directors buying in a vacuum of information or market knowledge on Eaga.
April 25th Galiform GFRM 71p POSITIVE CALL +18% absolute, +12% relative
Positive call based on intriguing market timing, namely CFO buying shares for the first time since joining the board in 2005, in an environment of negative news from the housebuilders.
April 30th Connaught CNT Eaga EAGA -4.5% relative
Switch suggestion (long term ‘2-3 sets of results’) from CNT into EAGA based on director selling in former, and buying in latter, as well as significant valuation differences
I haven’t seen the full details yet of who bought what when.
But the Times points to a significant purchase by HBOS (HBOS, 474p) directors and staff, who ‘spent almost £6 million bumping up their shareholdings in the FTSE 100 mortgage bank the day after malicious rumours’.
Let’s take a look back to November last year, when the banks were in freefall over market rumours as to who held the toxic waste. RBS directors, by buying in significant size, and in concert, sent a very strong message to the market.
Over the next three weeks, RBS was up 21% absolute, or 18% relative to the FTSE. Can this happen again? Absolutely. But I don’t think it will take three weeks this time
See my note of December 6th: RBS directors outperform FTSE by 18%.
Postscript with my change of view following further information, see post of March 26th on HBOS ‘Read the fine print’.
I want to wish you ‘good investing’ in a period of huge uncertainty. I suppose (is ‘hope’ a more appropriate word) the brave will be there to buy when everybody is panicking, which is why I’ve allowed myself to have a list of buys.
When I look at directors dealings I’m looking for a change of pattern or direction, an intensity of director interest indicated by volume and speed, and a sentiment change within a sector.
Stocks that satisfy one or more of these criteria are
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Wolfson (WLF)
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Aegis (AGS)
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Findel (FDL)
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Enodis (ENO)
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Segro (SGRO)
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Hammerson (HMSO)
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Great Portland (GPOR)
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Yell (YELL)
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Michael Page (MPI)
Look in the archives or via the tag list for my reasoning on these stocks.
Real estate stocks are overweighted here, which I suppose shows a tendency to ‘value’, by me and company directors. If I look at the real estate sector overall though, I find that over the last month director buys outnumber sells by about 4:1 (source www.digitallook.com). Interestingly the bank directors seem to have gone a little quiet recently, after a flurry in early November (see RBS) !!
You’ll also notice a preponderence to midcap or ftse250 stocks in this list. This is not intended, but a result of the criteria. I don’t look at stocks smaller than the ftse 250.
Take a look at this wise wise man. John Carey, Chairman of Wolfson Microelectronics (WLF 208.5p).
In 1969 he founded Advanced Micro Devices.
In 2000 he became Chairman of Wolfson.
Last year, March to May 2006, he sold 400,000 shares in Wolfson at an average price of 488.25p. He even managed to sell half of these shares at a penny above the all time high close, at 557p!!
Between November 16th and December 18th 2007 he has bought them all back, at an average price of 205p. That is 58% below where he sold them.
Yes, he does own almost 4.4m shares. But this was such a good trade, and this guy is so knowledgable, I thought it worth mentioning.
We’ve looked at, reported on, and acted on recent property sector ‘insiders’ activity (click on ‘real estate’ tag to the left).
Now Anthony Bolton, guru portfolio manager, tells us he is doing the same thing, namely buying property stocks. Follow this link to The Times article.
Bolton has an awesome reputation, so please listen to him.
Today FT.com reports on RBS: ‘ Sir Fred Goodwin, chief executive, said the bank had been “comparatively unaffected” by turbulence in world markets and the write-down because of credit market moves would be a net £950m in the second half. This is below the £1bn to £2bn range of expectations.’
On November 12th followthedirectors reported: ‘Strong message from RBS’. ‘Five non exec directors of Royal Bank of Scotland (RBS) last week bought shares at between 403p and 423p. They increased their shareholdings by a significant amount, by between 25 and 150%, and put in between £40k and £495k of their own money.
I went on to comment that ‘For a bank which is supposedly sitting on possible losses of several billion pounds this is certainly interesting behaviour. It also signals to me that the market has oversold RBS in anticipation of the disclosure of these losses.’
So, friends, did the market listen to the strong message that the RBS directors were sending? Mostly, yes.
The FTSE over that period is up from 6300 to 6500, a rise of 3%
Since my report on November 12th in the am, RBS are up from 402p open, or 406p where I bought them that morning, to 493p now, a rise of 21%.
And while I’m blowing my trumpet, in the same post I suggested a switch (or short position) out of Standard Chartered and HSBC into Barclays and RBS.
If you (or I for that matter) had done this, then your long positions would be up on average 19% (RBS 21%, Barc 17%) and your short positions up on average 8% (Stan 15%, HSBC 1%), a return of 11%. Go back to my post of November 12th for director dealing driven signals that prompted this suggested trade.
On November 16th we saw Gt Portland director Peskin buying £1.6m worth of shares (see ‘Another buy by Real Estate sector director’). Since then he has continued to buy, investing a further £1.1m at prices between 458p and 477p.
Gt Portland CEO and CFO Toby Courtauld and Tim Drakesmith have also pulled their chequebooks out. The CEO and Executive Director of Derwent (DLN) too have been active, investing over £500k between them, as have directors at Minerva (MNR) and Real Estate Investors (RLE).
However not all insiders believe the sector is cheap. Note Robert Bowden of British Land (BLND), selling 100,000 at 840p, about 1/5th of his total holding.
The jury is clearly still out, but as I noted on November 19th, I needed one more director to buy shares, and we’ve seen that in Silver and Burns of Derwent London.
Disclosure: I have a position in GPOR
Do you remember Randstads profit warning in July this year? You should. Share prices in Randstad (RAND), Michael Page (MPI), Hays (HAS) and SThree (STHR) have fallen since then by around 30-50%, from year highs to near year lows now.
Interesting then that yesterday the CFO of SThree, Nelson, dips his toe in the water and picks up £102k of stock, increasing his holding by a third. Even more interesting is that the company are due to announce a trading update on November 30th.
Nelson sold about 14000 shares at 372p in November last year. Looking back to April this year it is also curious to see three senior managers (CEO, CFO and MD) at Michael Page take out £700k to £800k each by selling down their positions, over and above the stock they sold as a result of options exercise, within 7% of the all time high for MPI.
With the real estate sector underperforming the banks by 10 points (-32% last six months, banks -23%) we might also want to look for some indicators that the underperformance is coming to an end. The only news I can find is a non exec at Hammerson (HMSO), Clare, who more than doubled is holding in the group by investing £102k at prices close to £10. Considering executive board members managed to get out at prices in the £15-£16 range, I think this purchase is significant.
But…. this is the only guy buying, and to make a confident call, I’d love to see some of those executive directors buying back stock, before I do. So Hammerson goes on the ‘watchlist’ pending further news.
followthedirectors... a study of directors share dealings 