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CORRECTED: Those in the know silently shout SELL

On 29 August 2013, The Motley Fool published a previous version of this article which stated that Bevan Slattery sold 10 million shares in NextDC (ASX: NXT) reportedly as part of a divorce settlement. This statement was incorrect because Mr Slattery and his wife have not divorced and remain happily married. We unreservedly apologise to Mr Slattery, his wife and his family for this error.

Leading up to reporting season, many companies go into ‘blackout.’ During this time management regularly refuse to talk to analysts and investors on fear of letting slip any market sensitive information.

During the blackout period directors of the company – those with intimate knowledge of the results about to be released – are generally forbidden from buying or selling shares in the company. After the results are released however and the market is considered ‘informed’, what is often referred (metaphorically) to as a ‘trading window’ is open for the directors to buy and sell shares.

And selling they have been!

With many stocks at 52-week highs and some at multi-year and even all-time highs, it appears some directors must think things are perhaps as good as they get. Mr Michael Malone, the founder of iiNet (ASX: IIN) and fellow director Mr Simon Hacket, the founder of Internode (now part of iiNet) recently offloaded 5 million and 6 million shares respectively in the telco.

Meanwhile Mr John Yeudall, who has been a director of Cash Converters (ASX: CCV) since 2002 just this week offloaded his entire stake in the company

It’s not just directors who have been selling lately either. Billionaire James Packer who has had some fortuitous timing in the past, recently offloaded his 4% stake in SEEK (ASX: SEK) and his 8% stake in Magellan Financial Group (ASX: MFG) raising around $260 million.

Foolish takeaway

There are often understandable reasons leading directors to sell large chunks of their shares. The bottom line is director selling isn’t an immediate reason to go out and sell your shares too – but it is generally worth seeking an explanation to.

Oh, and if the director uses the excuse of “school fees” as his or her reason for offloading a stake in their company – this coming from someone earning $300,000 plus a year – get worried! If they can’t organise their personal cash flow to pay school fees just imagine how they are running your company!

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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