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Date : 17/08/2022

Why Smart Investors Look at Directors’ Share Purchase

There are many reasons insiders sell, but only one reason they buy.’ The old Wall Street adage is another way of saying that share dealing by directors is worth keeping a close eye on.
There are ASX regulations that govern Director trading. Any changes in Director’s shareholdings are to be made public within 5 days via notices labelled Appendix 3Y. Why is this so powerful?
Directors should know better than anyone else the true value of their businesses. Academics, investors, and our own research indicate following smart money can be a successful strategy.
Tracking ‘Insider Activity’ can be a real eye-opener and a useful lead indicator for retail investors. Especially now, when companies are becoming more complicated than ever to understand.
Directors would have to be stupid not to have a better feel for a company’s fortunes than us, so it is always worth watching.
However, not all Appendix 3Y filings are relevant. Most of the time, directors get issued shares in lieu of a performance bonus, a dividend reinvestment plan, a share issue, an off-market transfer, a movement from one entity to another, a share purchase plan, a bonus or through the maturing of options. What we look for are director transactions that are “on-market” transactions. Hence, the context is extremely important.
Additionally, a thorough analysis of the stock in question usually serves up a share price catalyst in sight. This is when we know the Insider Activity that we witnessed has a high hit rate!
It is not just us stressing the importance of tracking Insider Activity. Peter Lynch, one of the greatest investors, said, “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
It is worth noting that Lynch averaged a 29.2% annual return, consistently more than double the S&P 500 stock market index and making his fund the best-performing mutual fund in the world.
DevEx Resources (ASX:DEV) Director/Chairman Bought Shares in April 
While we can draw up plenty of examples of directors buying shares that have become a success story, DevEx Resources is one of the best recent examples. This is a company with a star-studded Management and Leadership Team.
We had been tracking DevEx for a while, and in April 2022, we noticed that the company filed three separate Appendix 3Ys in the span of just two days.
  • Their Chairman and Major Shareholder Tim Goyder added 1 million shares to his holdings for a sum of $472,000,
  • Director Richard Hacker spent $147,000 and bought 300,000 shares, and
  • Director Brynn Jones, who comes with extensive experience in the Uranium Industry, added 100,000 shares for $53,000.
It is worth mentioning that this is a management team with skin in the game. For instance, Tim Goyder is a mining industry legend with over 40 years of experience. He has directorial roles at Chalice Mining, Liontown Resource, and Minerals 360.
Was There A Catalyst? 
The Directors and Chairman buying shares was thus the first indicator. The next thing to do was see if there was a catalyst in the pipeline, and there sure was.
DevEx was undertaking a rigorous diamond drilling campaign 100%-owned Nabarlek Uranium Project, located in the heart of the world-class Alligator Rivers Uranium Province (ARUP) in the Northern Territory. Now, we had a catalyst – the second indicator.
Excellent Drilling Results – DEV shares up 63% in 1 month 
The results of the drilling were out earlier this week. DevEx intercepted high-grade uranium and said that the campaign is off to a strong start with standout intercepts.
To date, three diamond holes have tested the Nabarlek South Prospect, and further drilling is planned. The DevEx share price is up 63% this month and 31% in the past week. With additional drilling results still pending, there continues to be a catalyst in the pipeline.
While Directors buying shares and following suit is not a guarantee, it is a leading indicator. Together with stock research and it becomes 2x powerful.
Eagers Automotive (ASX:APE) Director Buys $2 Million Worth of Shares 
Much like DevEx, we think there is something brewing at Eagers Automotive, one of the leading automotive retail groups in Australia and New Zealand.
Nicholas Politis is a Director and the largest shareholder at Eagers. From the 12th of July to the 8th of August, Politis has purchased over $2.2 million worth of Eagers shares. This Insider Activity amounts to over $1.5 million in the past month alone. He now has over 70 million shares in the company.
Our research has also revealed that Eagers has been on an acquisition spree – acquiring a portfolio of dealerships and associated properties in Canberra. This is consistent with Eagers’ execution of its Next100 strategy and will provide the platform to expand their businesses into the ACT.
Again, we have both indicators present. Politis has purchased over $2 million worth of shares, and our research points toward more acquisitions in the pipeline as part of the firm’s Next100 strategy. Eagers shares are up over 25% in the past month.
Shares in Value remains at the forefront of finding superior ASX shares 
At Shares in Value, we keep an eye on insider activities and conduct thorough stock research to determine high-quality shares. Much like what our researchers did for DEV and APE, we tracked down months of activities and validated if catalysts existed before recommending these shares to our clients.
We are premium researchers deep diving at directors’ purchases while others merely stay in the shallow waters. Our goal is to help you find real treasures in the ASX market.
If you would like to book a free personalised walkthrough of our platform from a Dedicated Account Manager and take a look at our portfolio for free, just click HERE.
Disclaimer: Prices on the graph are approximate and as of 10th August 2022

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