Dear stockbrokers, dear stockbrokers,
I have been working with private investors for over 20 years now, and for about 10 years I have also been providing my information in the context of various market letter publications.
at the end of the year, large bonuses are again distributed in many companies. Some top managers can look forward to special payments in the millions. Of course, the money wants to be invested. Sometimes the managers put the money into their own company and buy shares in their employer. We brokers call this an insider purchase.
Insider buying considerations are an underused but powerful tool for assessing stock valuations. The management of a company is usually well informed and is best able to predict future business developments. It is therefore helpful to keep an eye on the purchases and sales of top management and the board of directors.
The good thing is: the transactions of the board members and supervisory boards must be published. That’s what the transparency laws say. We investors are therefore always informed about how confident the company leaders are at the moment. Large buy orders are particularly positive. If a manager puts a lot of money into his own company – ideally a substantial part of his annual salary – then the chances of good business development and positive surprises are very good.
In addition, a strong management commitment inspires the natural drive towards a shareholder-friendly business policy. Because the more the top managers themselves are involved in the company as shareholders, the more they themselves benefit from increases in profits, dividend increases and a positive share price development. The interests of shareholders and directors are aligned.
This is usually a particular strength of family businesses. However, if the top management is involved in a stock corporation with a large part of its own assets, then the automatic steering effect to a long-term way of thinking is almost as strong as in a family business.
But the top managers not only buy shares, they also sell them again. These sales must also be published. You can also take the sales into account when making your investment decision. It becomes particularly critical when several members of the Management Board and Supervisory Board sell shares within a short period of time. Then there might be something wrong.
However, a single sale is no reason to panic, even if the sums involved are considerable. Managers often receive part of their compensation in the form of stock options. In order to convert this part of the remuneration into cash, sooner or later shares have to be sold.
A strong rise in the price can also encourage an insider to sell, even if he still thinks the company’s prospects are extremely positive. Because if a large part of the assets of the person concerned is already invested in a single share, the desire for diversification increases.
Sometimes there are also very banal reasons for a share sale. The manager might want to buy a new house in Mallorca or give his wife or children an expensive birthday present. A tax arrears could also be the reason for a sale. These sales are harmless as they are not made out of fear for the company’s future, but simply to free up cash.
So insider selling is not as strong a signal as insider buying. You should always pay attention when several managers sell within a short period of time or when top management is openly looking for new employers. Then it is high time for you to act.
You can also find more of my analysis, recommendations and comments here.
With kind regards
Her
Alexander of Parseval
Analyst and Investment Advisor
PS There is no other way. This year we have to do it again, namely on our tax pots. Is there still credit that expires at the turn of the year? Then you have to get it back. I’ll explain to you tomorrow at this point how you can get any refunds from the tax authorities.
