They say that insiders/directors understand a company’s prospects best, that their share purchases/disposals can offer signals to the market when a share price is deemed under- or over-valued. Yesterday was a case in point. Thomas Cook Chairman Frank Meysman made a whopping 50% return in less than 24 hours after buying 373K shares Tuesday for £80K, upping his total holdings by 53%. Fortuitously timed trade? Calculated judgement call with multi-year lows of 21.5p too much of a bargain to ignore? Whatever the reason, director dealings disclosures can be noteworthy news.

The shares may well be -14% today to 30p, continuing to trade with a volatility that could make even the Pound Sterling blush on a busy day for Brexit soundbites, but his 40% paper gain is still huge.

Whether the Chairman was looking to make a profit himself (it’s only a third of his annual £275K salary, and he can’t cash out immediately) or trying to make a very public vote of confidence to encourage interest in the battered share price is irrelevant. Nobody wants to lose money; nobody risks money without the chance of reward. Especially if they are considerably more knowledgeable about the company in which they are investing, appreciating whether the forces buffeting a stock price are justified.

Add to this another non-exec director also buying shares on the same day, albeit much less (200K shares are 22p; £45K), adds weight to the argument that those at board level are best placed to gauge whether a share price sell-off is overdone, with their director dealings reports worthy of attention.

There are rules and regulations preventing Directors (exec, non-exec, CEO, Chairman, etc) from trading on actual “inside information” (major news not yet made public) and/or ahead of major corporates updates. However, being able to forecast improved financial performance based on internal and industry knowledge, and buying/selling the shares accordingly, is permitted – a perk of the job if you like – so long as the financial markets are kept in the loop.

Public disclosure of transactions allows investors to conveniently stay on top of which key company members are buying or selling, reinvesting or exercising options, subscribing to a rights issue, etc; how many and at what price. There may be patterns to be spotted, with heavy investment/divestment by the same director at the same time each year. Perhaps groups of directors have a tendency to transact around the same time. What about peer companies? Insiders buying more or selling down? A helpful picture can be painted.

That said, while Thomas Cook Chairman has a history of getting it right, he can also get it wrong. He bought 150K shares at 60p in September, just after this year’s second profits warning (the first was in July). These shares now show a 50% paper loss. He bought 42K at the same price in June 2016, just after the referendum sell-off. These had tripled in value by last May’s highs, but now also show -50%.

He bought even higher in May 2016 (35K at 70p), which suffered into the referendum, also doubled over the following two years, but are now also well in the red. August 2015 (50K at 106p) proved a poor entry point ahead of the referendum while subscription to June 2013’s right issue (120K at 76p) did very well initially, +50% by Jan/Feb 2014, before a six month reversal undid most of the gains.

As it stand, the Chairman’s only profitable stakes are those from 2012 (200K purchased at 17-25p). Having bought 1m shares over 6 years, spending over £400K, his aggregate position of £294K implies a paper loss of £110K, which suggests that following insider/director dealings reports aren’t a perfect strategy investing over a time-frame of several years.

They can, however, offer helpful short-term signals, worth monitoring in case somebody near the top of the corporate pyramid decides to pile or cash out, suggesting a market bottom or top that could allow you to buy low and sell high.

The Thomas Cook Chairman needs to see 42p before he is break-even on all his shares. Given the current daily share price swings this isn’t beyond the realms of possibility. Then again he’s likely not bothered, in it for the long-rather than the short-term. Looking at this trades, however, perhaps he’s a better short-term trader than long-term investor.

Who will the next big UK Index director dealings disclosure be from and what signal will it provide?

Mike van Dulken, Head of Research, 6 Dec 2018,