Hi all,
I was thinking about director share purchase as Peter Lynch mentioned that it is always good if we see the director purchase more company shares. However, if the company is a growth company and its growth is tied to acquisition or new upcoming projects, would it mean it is a good time to follow the director purchase? This is because, if their are any deals on the making, the director will be disallowed to buy as he would definitely hold material information about the upcoming growth prospects. Therefore if he/she buys now, it means that this is a safe period for them to buy and auditors or compliance cannot fault them when there are no material deals coming.
What do you guys think?
Yes. I too read read this book. I believe that shares purchase by directors and substantial shareholders are better than share buybacks. This is because they are using their own money and investing in their own capacities.
Share buybacks may be different as some is quite speculative and looks as they are supporting the company shares for certain reasons.
www.sharebuybacks.blogspot.com
(16-12-2011, 08:56 AM)ken Wrote: [ -> ]Yes. I too read read this book. I believe that shares purchase by directors and substantial shareholders are better than share buybacks. This is because they are using their own money and investing in their own capacities.
Share buybacks may be different as some is quite speculative and looks as they are supporting the company shares for certain reasons.
www.sharebuybacks.blogspot.com
One possible reason I can think of is the Stock Options. Many of our listed cos. continue to use Stock Options as part of their Salary/Bonus payout. The more senior the manager, the greater the nos. Stock Options come with an exercise price. When Share Price falls below Exercise Price, the Stock Options become as good as worthless. So, if you happen to be in the top mgmt and especially if you have a lot of Stock Options, what do you think you MAY try to do if the Share Price is dropping and making your Stock Option become useless??
Note that Stock Options come with a life span, usually 5 years for most cos. So, there's still some Time Value for Stock Options with a longer life, even though they may be underwater ie. Exercise Price > Share Price. The urgency to boost the share price is more obvious for the expiring Stock Options.
not all share buyback are good news. Some companies try to fake good news, you must see how much the company directors buy. How much the cumulative total value for the period all the directors in the company have spent to buy their company shares, if their own wives or people related to them also pitch in then it's also a good psychological sign.
Generally if total amount spent is at least $300k to $500k of their own money to buy their own shares then that's a good sign worth your time to investigate further.
but If they committed only less than $20k then common sense tells you they most likely just trying to fake confidence to boost the share prices
(16-12-2011, 09:15 AM)KopiKat Wrote: [ -> ]One possible reason I can think of is the Stock Options. Many of our listed cos. continue to use Stock Options as part of their Salary/Bonus payout. The more senior the manager, the greater the nos. Stock Options come with an exercise price. When Share Price falls below Exercise Price, the Stock Options become as good as worthless. So, if you happen to be in the top mgmt and especially if you have a lot of Stock Options, what do you think you MAY try to do if the Share Price is dropping and making your Stock Option become useless??
Stock options for management is very frequent in HKEx. In fact, unlike SGX, HKEx lacks the frequency of open market purchase by Directors or SSH - something which took me a little to adjust to. What are the implications if Directors decide to exercise their stock options? Maybe they might have a stronger conviction that the stock price will increase in future?
Might be true but one thing we need to realise - which I've come to realise recently too - is that Directors or SSH buying company share maybe an alignment of common interest with minority shareholders like us but it does not NECESSARILY means the higher certainty. In fact, we need to take into consideration that such Directors might not be a good investor at all. True enough, a good businessman may not necessarily mean that he/she is a good investor.
Also, there is also a possibility that Directors purchase shares to add much-needed confidence into the market. Imagine I'm a director of a listed company and I see that my company's stock price has taken a 50% plunge. I may decide to execute some "open market purchase," investing maybe about $50,000 into the market. Well, this $50,000 may be peanuts to me if my networth is about $100 million. Hence, there is also a need to consider the absolute amount which the Directors or SSH is investing - is he/she making a big bet or perhaps a small side bet against the market downfall?
As for share buy back, I normally take them with an lesser pinch of salt. This is so because the Directors are using the company's money, instead of their own money - less of a conviction here. Moreover, I feel it will be better for them to hoard cash and use it for future acquisition purposes. Perhaps, a better indicator will be to use a backdate testing and see if the company has done any share buy back previously and how the share price might have performed subsequently. i.e YZJ is a good example of good share buyback during the 08 crisis.
All these postings remind me why Hyflux is buying back their shares in the market? Don't forget about Hyflux's 6% CPS. i don't really understand here? How come Hyflux still have so much cash meh? Can someone please elaborate? Blurr......
(16-12-2011, 11:52 AM)Temperament Wrote: [ -> ]All these postings remind me why Hyflux is buying back their shares in the market? Don't forget about Hyflux's 6% CPS. i don't really understand here? How come Hyflux still have so much cash meh? Can someone please elaborate? Blurr......
I think the preference share proceed has not been fully deployed yet. so easily still got a few hundred million
wait a minute, raise funds from debt to do share buy-back??
ain't that silly??!! :O
There are also companies that borrow money from banks to make up the difference to the "promised" dividends to shareholders.
Ah! The mysteries of financial engineering
Not that I complaining. If I am the shareholder, I would collect the dividend (thank you very much!); then sell my shares. Let shareholders that come after me carry the debt baby... LOL!
(20-12-2011, 04:20 PM)brattzz Wrote: [ -> ]wait a minute, raise funds from debt to do share buy-back??
ain't that silly??!! :O
hmm..it may make sense if your P/E or P/B is really low?
For example if i buy my own stock at a P/E=4, i am getting 25% yield with my $..