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The Monthly: March 2022

02 Mar 2022 / Corporate research

Feature article:

Directors’ dealings

A legal way to do insider trading

Introduction

One of the first things that a junior analyst learns is to keep an eye on directors’ dealings, but sometimes this is more complicated than meets the eye. In this article, I look at some less obvious tricks to study directors’ dealings.

It’s worth prefacing these remarks with a comment that, although investors want company CEOs and CFOs to have skin in the game, individuals shouldn’t have all their chips in one basket. It’s perfectly reasonable for a CEO to have an element of diversification in his or her portfolio. The analyst has to try to understand how much is enough, and when a stock sale is more than diversification and amounts to a vote of no (or reduced) confidence in the company’s future.

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