Ask Colin

What does it mean when management are reported to be selling shares in a company?

In general terms, many people hold that directors or management purchases indicate confidence in the company while sales indicate a lack of confidence.

However, it seems to me that this can be too simplistic. There can be many reasons for sales and purchase - especially sales. Sometimes it is a need for cash for other investments. Sometimes it is simply a switch: Options become available and they find it tax effective to sell shares now and exercise the options a little while later. They may actually end up with more shares.

Personally, I take the view that each case has to be considered on its merits. However, since there will often be nothing to really go on, the chart is the key. If management is selling and the price is falling it is pretty clear.

Keyword: