Using Price Sensitive Information Director’s Share Dealings

One tool sometimes used to make buy and sell decisions is when new information about share dealings of the directors of the company comes to light. They say a picture tells a thousand words, well it when it comes to Shares sometimes a directors trading action can you tell you a thousand words. These can give signals to the market place about how much believe the directors have in the company that they are managing and can sometimes cause some significant movements in share price.

In the UK it is regulatory policy that all directors dealings are released and reported to the London Stock exchange, this is to aid transparency to the market place. All the details about directors can be found in the financial press. To sources for such data are Morningstar and Money AM . Both are very useful resources with Money AM in particular being a great site.

It is important to note that some of these dealings will be completely unrelated to any feeling about the company. A large sale of shares could be made in order to purchase a new holiday home, for example. When it comes to working out the relevance of these dealings there a couple things you should keep note of. 

  1. The size of purchase or sale in comparison to the directors overall shareholding. If the sale is of relatively small percentage it is unlikely to make any difference to how the companies share price will trade. But if the deal represents a significant change in the stake held then it is likely. 
  2. Check the price the deal was made in comparison to how the stock was trading in recently. Depending on the price that the trade was made you might be able to garner what the director feels about the true valuation of the company.

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