Director Dealings (20 years to be analysed)

29th Nov '20 by HollandSmith

14 comments 1265 reads

My intention when I downloaded the entire history of director dealings was to post a one-line comment on Ed's post - but as with many of my comments here - I seem to eat up the digital landscape - so a separate post was appropriate.

Hi,

Completely understand logical aspects behind following people with “skin the game” - but there might be another side of the coin here where completely self-absorbed or inflated egoistical mindsets fuel these transactions - so I have a simple question -

Are these transactions worth following?

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Download all 175,057 “Director dealings” since 01/01/2000 to 27/11/2020
Suppressed non sterling transactions - Gross count 4,580
Suppressed zero value transactions - Gross count 36,71
Suppressed transaction types which are labelled Buy or Sell (Only intentional timed transactions remain)
*******************************************************************************

Before we answer the main question - lets first get a feeling for the data.

How many transactions are listed in a year?

5fc3947e3edd6Screenshot_2020-11-29_at_12

There has been a steady but significant increase of director transactions in the past 2 decades with over 4/5 been purchases rather than sales. But this is actually quite misleading when looking at the value of the transactions displayed on the next table.

Whats the value transactions listed in a year?

5fc39458232e3Screenshot_2020-11-29_at_12

Most recently the yearly total purchases have averaged around £500 Million - but the sales have averaged around £1.5 Billion. Despite a sale only accounting for 20% of transactions, they are on average 14 times larger in value than a purchase leading to 75% of the transactions value. In my opinion, these purchases are not “timed trades” but investments where individuals are drip feeding over time and pulling their investment all at once - presumably due to retirement/life events.

5fc398d3afce2Screenshot_2020-11-29_at_12

So who is making these transactions?

5fc396b018c0aScreenshot_2020-11-29_at_12

Opinions are welcome here - but its interesting to note where financial directors sit on this list.

So, have these directors transaction been actually profitable? (Median Value)

5fc39b1ee452aScreenshot_2020-11-29_at_12

Since 2013, the majority of purchases are sitting at a loss with the exception been 2020 where individuals took advantage of the uncertainty.…

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Metatron

29th Nov '20

Would imagine director buys and sells are significant in the commodity sector.I would not buy a small cap mining share if there were several director sells.

Snooker2020

Hi Dan,

Great write up and analysis.

How did you download the data, have stocko given you raw data access???

ISAallowance

Really interesting, thanks!

Regarding the steady increase in director transactions over the last 2 decades, does this data cover all companies from that era, or only director dealings from companies that still exist today? If the latter, then that could explain some or all of the increase.

Rusty2

Hi Dan, do these trades include share options?

I also think that buy/sells by the CEO and CFO are more relevant.

I have noticed that some large share sales have been followed by some substantial falls, Ab Dynamics (LON:ABDP) is one example, there was a lot of selling around 2600p, shares did fall to around 1000p.

LoopUp (LON:LOOP) a recent big faller, one large director sale at 225p.

Before I buy a share I check the directors dealing.

Over what period are the profit/loss figures calculated?

Alex Meals

If director makes a purchase of 2 millions or more should i consider that they knowsomething and thats good investment..?

Logical David

Hi Dan, an excellent piece of work. I imagine you toiled for quite a few hours in order to put this document together.

smegster

For Ab Dynamics (LON:ABDP) the director share sales were in Sept 2019, while the fall in the share price was in March 2020 so they don't seem to be connected (I'm a holder)

GloucesterBob

Would the figures change much if you only included substantial buy/sells say of over 30K?

30th Nov '20

There maybe some delay, but a fall of 65% is quite significant, I find directors often sell out too soon but sometimes such as Solid State (LON:SOLI) in 2015, the shares do fall quite quickly. If there is a lot of director selling I tend to get out.

Wilbraham

Those with long memories will recall the Directors' Dealings Investment Trust which morphed into the Stakeholders' Momentum IT https://www.investegate.co.uk/... and after some years' material underperformance was rescued by Manchester And London Investment Trust (LON:MNL) https://www.investegate.co.uk/... The rest is history.

Hopefully Holland's more sophisticated analysis will have a happier ending!

Personally I find directors sales, quite an ineffective measure for predicting what will happen to company share prices as we always have to second guess the motivations for any sales (did the directors sell out because they knew the company growth is going to collapse or do they need money for a new house/a divorce/ a new yacht etc).

herbie47 is correct that the Ab Dynamics (LON:ABDP) share price fell 65% (2600p to 1000p) sometime (six months) after a large director sales (it has now recovered to 1800p).

Here is a graph of Ab Dynamics (LON:ABDP) director sales since 2014 -this is based on stockopedia data- the right axis shows volumes and the left axis the director sale price (the columns in yellow are sales by Anthony Best the founder and Chairman of Ab Dynamics (LON:ABDP) )

If you had used the director sales in June 2014 (at 150p) as a signal to sell , you would subsequently have missed out on a 12 bagger!

How about the large director sale in Jun 2015 (at 300p) - then you would have subsequently missed out on a 5 bagger!

Anthony Best is 83 years old - he has created a wonderful companies - over the last 8 years he has been gradually reducing his shareholding in Ab Dynamics (LON:ABDP) (he still own over 25% of the company), if he sells some shares that is up to him, I don't think we need to read too much into it (unless he fully sold out).

(Dan - nice analysis)

HollandSmith

1st Dec '20

Thanks ISAallowance!

It’s the full count covering all companies. Below I reproduce the count - this time only suppressing no sterling transactions. As you can see, all transaction types show a rise across the board.

5fc61307780fbScreenshot_2020-11-29_at_17

BUY - Buy
SELL - SellEXR - Exercise
SEXR - Sale Post-Exercise
DRI - Dividend Reinvestment
DRIP - Dividend Reinvestment Plan
AWD - Award
TIN - Transfer In
TOUT - Transfer Out
LOF - In Lieu of Fees/Salary
SI - Scrip Issue
PLAC - Placing
RIS - Rights Issue

Hi Alex,

You would think directors know something by just having the job title. Actually, you should consider directors know every little detail about the company and its sector landscape. So when a director makes a purchase under their own self-judgement, its expert prediction that this is the horse to back.

Wow! Valuable information from the very top! OR … Is actually a binary question for them? Where the only answer is to invest or to constantly get undermined by the question?

But you - “Alex the investor” - you’re in a powerful position here! You have a whole world of choices of extraordinary and remarkable products and services to own! Without the pressure of a fake binary question.

I do sit up when you see the large director dealings in Domino's Pizza (LON:DOM) and question if they know something we all don’t - or does they think they just winning the local pizza wars? This maybe profitable but is it comparable to lower director dealing of a cutting edge technology company thats undiscovered? Or do they know something we don’t… or are they pressured into…. Or are they….. Or…. Or…

To me that every transaction is unique to its context and its weight of importance should be calculated as such.

Thanks
Dan

Thanks for the info. on Ab Dynamics (LON:ABDP), I do find that chart a bit misleading, sales in 2014 were 400,000 shares but they were only about 170p?, so about £680,000. The sales in 2019 were over 200,000 @ about 2700p = £5,400,000 which is a considerable difference and they did time it well as shares did not go over 2815p and then fell to under 900p. The difference in 2019 was the amounts in £ and the number of different directors.

I would not blindly follow director buys either as you can see at Photo-Me International (LON:PHTM), Crasnianski bought over 5m shares @ about 157p, shares are now about 55p, but there has been quite a lot of buying recently.

Shearwater (LON:SWG) has had a lot of director buying but the shares fallen quite a lot.

Director Dealings (20 years to be analysed)

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HollandSmith

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