Buccaneering financier Jim Slater has been sharing stock tips in the Telegraph newspaper for over 50 years. It’s important for potential investors to keep an eye out for these kinds of articles, as well as things like Grizzly Reports which help you to avoid making bad decisions. As well as this useful site, there are also sites that allow you to see which services are actually worth your money beyond the heavy marketing of companies. Top Trade Reviews do this for you to ensure you’re getting your moneys worth.
This past weekend, Slater wrote about how to interpret insider trades by company executives or directors. The full article, as with any Slater commentary, is a must read. The story also discusses a few of Slater’s recent purchases.
Here are Jim Slater’s 7 insider trading tips via the Telegraph:
- A cluster of three or more directors selling or buying is almost invariably meaningful.
- Selling or buying by the chief executive and the finance director is a particularly powerful indicator. They are the two directors who are most likely to know the score.
- The significance of share deals in relation to the number of shares held by a director is always relevant. A purchase of 20,000 shares by a chairman who owns more than a million shares is of no importance. However, the finance director doubling his holding of 20,000 shares is a very different kettle of fish. In a similar way, the sales director selling 20,000 shares out of a holding of 25,000 would put me on red alert.
Judgement is frequently required. A recent example, which I mentioned last month, was the sale of 350,000 shares out of a total of 844,193 held by the chief executive of Renew Holdings, the engineering services firm listed on London’s junior Aim market.
I may have made a mistake about this when I decided that his sale was significant enough to dissuade me from recommending the shares, which otherwise ticked all of my boxes. However, my golden rule is that when in doubt about whether or not to buy a share it is usually better and certainly safer to wait for another opportunity with no reservations.
- Keep an eye on the buying and selling of shares granted under option schemes. If the purchase price of the options is say 30p and the shares are currently 200p, the purchase would not be meaningful – who wouldn’t buy shares at such a huge discount? The key point is whether any shares are being retained by the directors. Look for net retentions with some of the proceeds of option sales being held and added to ongoing holdings.
- Substantial buying by non-executive directors can be indicative. For example, I was attracted to CVS Group, which runs vets’ surgeries, when I noticed in October that a non-executive director had bought 30,000 shares at 370p, adding to his existing holding of only 20,000 shares. Just four months later CVS shares have risen to 465p and still look promising.
- Be alert to whether or not the directors are buying shares just to show the flag. Sometimes when companies are known to be in trouble or are contentious, a cluster of the directors buy a few shares to try to reassure the market that all is well. Some of last year’s purchases by the directors of Quindell, the scandal-hit insurance outsourcer, probably came into this category.
- Directors’ buying is more significant than directors’ selling. A director buying shares is in effect saying that he considers the shares to be undervalued and to be a better investment than cash. He or she will also be adding to an existing holding. Selling is different – a director may feel that the shares are overvalued but equally may require the money for a valid purpose such as buying a new or larger house or meeting an unexpected tax bill.
Source: Jim Slater: This is the most reliable sign shares will rise | Telegraph