Page 62 - merged.pdf

•42 The 100 Greatest Business Ideas of All Time

Idea 27 – Dealing when the directors do

I said I would make two suggestions for a winning share strategy and here is the first.

It comes without guarantee and involves buying shares when the directors have

done so and following their lead also in selling.

It is extraordinary how news announced by companies comes, almost always,

after there has been a related move in the price of the shares involved. A simple test

of this is to look at what happens on the day a company announces its results. If the

results are in the middle of the range predicted by analysts there may be

It is extraordi- little or no movement. If they are at the top end of predictions the price

nary how news quite often goes down. The good news was already in the price. The main

announced by players knew roughly what was going to happen before the announce-

companies ment was made.

comes, almost Knowledge of the health of a company is revealed in a number of

always, after ways. The sources that the private investors have at their disposal are

there has been dominated by what they read in papers or magazines, or from material

a related move such as annual reports, which they can get from the companies them-

in the price of selves.

the shares Without any hint of insider dealing or illegality, such knowledge is

involved. basically old hat before the papers are printed. The people in the know,

i.e. the City, will have already taken positions on news before private in-

vestors have had a sniff.

The people closest to the real situation of the company are, of course, the direc-

tors. During certain periods of the financial year they are banned from dealing in the

shares in their own company, because their inside knowledge could damage inves-

tors without the directors’ access to information.

At other times of the year they are permitted to deal and they do. It is easy to

find out when this has occurred by reading the financial pages although the timing

problems mentioned above do exist. Nevertheless, following directors’ dealings is

potentially a way of making money in the long term. The rule is, if three or more