Shareholders should always pay attention whenever top executives in ASX-listed companies sell their shares.
It’s not always a harbinger of share price weakness although the more recent examples have proven to be prescient with the likes of the Treasury Wine Estates Ltd (ASX: TWE) share price, A2 Milk Company Ltd (ASX: A2M) share price and Baby Bunting Group Ltd (ASX: BBN) share price underperformance since the insider sales.
The TWE share price is hovering near a more than one-year low after its chief executive Mike Clarke sold nearly $2 million worth of his company’s shares in September.
The performance of A2M’s share price has also suffered (although not too much) since its CEO Carla Hrdlicka sold $4 million worth of shares and non-executive director Peter Hinton cashed in on nearly $300,000 worth of his holdings in September.
While the BBN share price has enjoyed a big bounce over the past six months, it has since returned a chunk of its gains after non-executive director Gary Levin sold nearly $460,000 worth of his shares on 13-14 August.
Should you sell when directors are selling?
But one shouldn’t be too hung up on director sales as there are sometimes legitimate reasons for the share sales which are unrelated to how the company is performing. These could include tax liabilities or the need for the executive to raise some cash for other liabilities.
Many of these executives also continue to hold substantial number of shares in their respective companies.
Your decision to sell an ASX stock shouldn’t only be determined by what executives are doing but it could make up part of your decision toolkit.
There’s also a saying in the market that there are numerous reasons why directors would sell their shares but only one reason why they buy.
A more powerful signal
From that perspective, investors should pay closer attention to when insiders are buying and how much.
If this measure is any guide, it bodes well for our beaten down S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as there seem to be more directors buying shares than selling in recent times.
Shareholders in Australia and New Zealand Banking Group (ASX: ANZ) would be pleased to know that the bank’s CEO Shayne Elliott has indirectly purchased 34,489 shares in his company, while the directors of Aristocrat Leisure Limited (ASX: ALL) and AP Eagers Ltd (ASX: APE) have been buying shares on-market as the share prices of their companies were falling.
Motley Fool contributor Brendon Lau owns shares of Aristocrat Leisure Ltd., Australia & New Zealand Banking Group Limited, and Baby Bunting. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.