Stock screens do not normally take director buys into account but Martin Zweig made director inside deals part of his stock buying methodology. He considered recent director sells as a negative factor as they could represent bad news that is not yet in the share price. He simply did not buy shares with this characteristic. He viewed recent buys as a positive signal and no buys or sells as a neutral signal.
I did an interesting exercise comparing the performance of shares from Zweig screens with different director dealing characteristics. (Check may profile for the web link) You may think the best thing to do is simply to cut out all the sells and you must get better performance but strangely that is not what happened. One of the reasons is that directors are not good value investors and the point when the share price is lowest is also the point when they could be taken over or the point when they will start to recover. (I would not count on this though.)
If we look at today’s Zweig Screen using just the director data on Stockopedia there have been a steady stream of buys at Anpario (ANP). There have been what Stockopedia terms a cluster of recent buys at Berkeley Group (BKG). Until recently analysts feared there was bad news on the way but the director’s kept buying as the share price fell. Zweig would not have been very surprised when the news turned out to be good.
There have been a cluster of recent director sells at Dillistone (DSG), Aberdeen Asset Management (AND), Ensor Holdings (ESR) and Staffline (STAF). There have been some steady director selling activity over time - Advanced Medical Solutions (AMS), Diploma (DPLM), CPL Resources (CPS), Prezzo (PRZ) and Pennant International (PEN). Zweig would rule these shares out but my study suggests that some of these could perform very strongly whilst others will bomb.
There were no recent buys or sells at Brooks Macdonald (BRK), Kentz (KENZ) and Dart (DTG). Zweig would take a neutral buying stance on these.
Globo (GBO) has a mixed picture with a cluster of sells followed by a buy. It could be that all the bad news is in the price but it is also possible that the expected bad event has yet to happen. It is a…
We are working on an extensive Insider & Ownership module, which we'd hoped to launch this month, but is likely to slip into January. There are some really exciting things going on there. I hope that we'll be rolling the Insider Rank & Short Interest Ranks as components of our overall StockRank. I can't really add much more to this debate than I already have in the article mentioned above - http://www.stockopedia.com/content/the-insiders-guide-to-directors-dealings-77163/
The most important things to remember are:
- Buys are more important than sales
- Large buys are more significant
- CEO/High level exec buys are more significant.
- Cluster Buys are very significant.
It's also worth remembering that directors often make paltry purchases in groups to try to game the market into thinking they are confident. These are worth ignoring. Sells are often worth ignoring - equity issuance to directors can be a part of compensation, and there are other valid reasons for selling other than the state of the company - e.g. diversification and or required liquidity events.
