Yes, it’s true. Of late, amid the market rout that started about a month ago, many company directors have been getting into the stock market to buy up their company shares. There were also cases, whereby companies also triggered their own buy up programs to mop up their company shares.
There are many more of such cases lately. OUE, BRC Asia, Keppel Group,Trek 2000, Wilmar, Courts Singapore and Singapore Airlines are just simply few examples. Directors, in their personal capacity, tend to be less and, usually, the share price is not very high as they usualy need to pay hundreds of thousands to millions to mop up the shares in the market in order to shore up the share price. The reasons for the directors to buy up their own company shares can be for several reasons.
Firstly, the directors may feel that the company shares are getting too low or could have fallen below their ‘intrinsic value’ and, therefore, it makes sense to buy up the company shares. It is also a bargain hunt for them to have a ‘stronger control’ of the company at a much lower price as well as to profit from a situation when there is a wide-spread fear.
Secondly, many of these directors are founders of their own companies. Thus, they may feel the emotional attachments to these companies that they have build up from nothing even though they may risk the share price getting lower going forward. The ‘sentimental push’ can be very strong especially when they have invested all the lives, heart and soul as well as blood and sweat in the business.
Finally, of course, by triggering such actions, it helps to shore up investors’ confidence in the company especially when the general market sentiment is weak. Certainly, it will be viewed more positively than companies who do not buy up the company’s shares. Companies or company directors who do not buy up their company directors especially during such times would be viewed less favourably compare to those that do because investors may view them as having no confidence in their own company shares or that the company or their directors do not have financial capacity to do so. Both of the cases would not be seen to be positive for the company.
Whether the directors are doing it for profiteering from the market situation or for sentimental reasons, or to shore up confidence, I would certainly favour those companies compare to those whose directors keep talking up the company but took no action in buying up the company shares over the years. Worse still, the directors keep reducing their stake in the company despite painting a glamorous picture of the company.
(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.