Should We Track Insiders’ and Major Investors’ Purchase?
May 9, 2017
Are All Share Purchase Created Equal?
People can sell shares for many different types of reasons. They can sell shares for a non-investment purposes such as needing to buy a new house, pay down debt, fund their kid’s university fees, and even just to spend it on leisure.
On the other hand, buying shares generally fall into more distinct categories. Peter Lynch pretty much sums up our thoughts with this saying,
“Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”.
This might be an oversimplification, and of course, there might be other reasons (i.e. employee share option plans), but there is true merit in that agreement.
Before going further, let’s start with a general understanding of what insiders and notable shareholders mean:
Insiders: People with very close relationships with the business, directors, executives, management, any other people with an inside view of the company. Insiders would include repurchase by the company itself (share buybacks).
Notable Shareholders: Major shareholders with a good reputation and track record
Should We Be Tracking Them?
This is due to the market perception of these two groups of people.
This is because the market tends to see these groups as better-informed about the company than us. Common perceptions include:
“Well, they (CEO, CFO, directors, management, company repurchase) work there, they should understand the company better than us outsiders”.
“Well, they (substantial shareholders, fund houses, reputable investors, big funds (sovereign funds, etc.) must have done their homework, why else would they sink millions of dollars into this company?”
For the most parts, if the notable investor has a good track record of investment, any share purchase by them would be seen as a positive signal. And it might create a lot of interests on the stock.
Therefore, tracking share purchases by insiders and notable investors can be an effective screening method for retail investors. It allows us to create a list of companies to research on. But we still need to find out why these insiders and notable investors are buying into them.
How Can We Find This Information?
Company Announcements: This is the old-school way. Most exchanges require listed companies to make an announcement when key insiders, substantial shareholders (>5%) and share buybacks are made.
Exchange Reports: For instance, the Hong Kong Stock Exchange publishes daily reports “Share Repurchase Reports” all the way back to 1991. We feel that this is much more useful as a screening tool compared to looking at an individual company’s announcement.
Publications: What we mean here are newspapers, magazine or any other documents. One of such documents that track both “Insider Moves” and “Share Buybacks” for Singapore Exchange companies is the once a weekly publication of the local newspapers.
For instance, in April 2017; the following companies were highlighted for buying back their shares.
Insider Move: Accrelist Limited, iFAST Corporation Limited, New Silkroutes Group Limited, Second Chance Properties and more
Share Buybacks: Boustead Projects Limited, Bumitama Agri Limited, iFAST Corporation Limited, SIA Engineering Co Limited and more
Mobile Applications: In this day and age, there many online tools to help us be a better investor. One such app that aids us in this field is “Spiking”. Spiking is an app that allows the use to track what they term as ‘Big Investors’ by compiling public information like stock exchange announcements into easy-to-use feeds.
You can find out more on the app HERE and their blog here!
The Bottom Value?
With so many companies listed on the exchange, it can be a tough task to sort thru all of them to find great investments. Following the trades of insiders and notable investors can give us a stepping stone in shortlisting possible investment target.