Deal: Wizz Air boss Jozsef Varadi bought £ 643,000 of the airline’s stock
No one knows where the stock prices will go from here, although some savvy hedge fund managers think they do.
The markets in Britain and the US rose slightly last week, but sharp corrections were made along the way.
Volatility, it seems, is with us for the foreseeable future. The understandable lack of clarity in investment thinking is evident from the response of various investment institutions.
Invesco said on Thursday that in a worst case scenario, the S & P500 Index – a measure of the stock market performance of large listed companies in the US – could drop to 1,400 in the next 12 months.
A terrifying drop in stock prices from here by 40 percent plus. But the best scenario points to a 20 percent increase in stock prices.
Talk about hedging your bets. Meanwhile, Janus Henderson believes that the projected 25 percent drop in corporate earnings across Europe has already been factored into European equity prices.
And fund manager John Bennett says European stocks seem oversold and are ready for a bounce on better corona virus news. But indicators suggested this earlier – only for them to drop another 10 percent.
Schroders speaks of a ‘flash of light’ at the end of what still becomes a ‘very long tunnel’. So few comfort words for investors from the investment experts. Few signals. So hold on? Yes, don’t sell? Yes, buy? Could be.
For investors, one of the few indicators of a company’s price outlook lies in whether their directors put their money in their mouths – that is, buy stocks in the companies they oversee, even if all the news is doom and gloom and the shares slide in price.
By buying shares in their own company, they indicate that they have confidence in the future of the company – and that the share price they are buying represents good value.
According to stockbroker Liberum, the ratio between share purchases and sales by directors of listed companies on the FTSE All-Share Index is ten to one. This is much higher than the five-year average of just over two-to-one. While some of these acquisitions may be an attempt by bosses to instill confidence in their company’s stock, it can also be read as a signal that stock prices are nearing bottom and are a buying opportunity for brave investors.
So while it may seem like a strange time to invest in airlines, Wizz Air chairman William Franke saved £ 700,000 worth of shares in the Hungarian airline, but he saved 41 percent on the price he would have paid had he bought at the peak of the market on January 2.
His CEO Jozsef Varadi, co-founder of the airline, did the same. Laura Suter is a personal finance analyst with asset manager AJ Bell. She is following the growing number of directors who have bought shares in their firms in the past month. She says, “As the adage on Wall Street reads, there are many reasons why insiders sell, but only one reason they buy. It is a signal that directors believe that shares in their company are undervalued. ‘
She adds, “Any purchase made by a company’s director or finance director is considered a powerful indicator of a company’s prospects, since they are the individuals likely to know their company’s prospects and underlying performance.”
Lee Wild, head of equity strategy at asset manager Interactive Investor, says the spike in directorial purchases “provides some reassurance to investors who can be encouraged to see management believe that not everything has been lost despite the economic turmoil in the stock markets.”
AJ Bell has compiled a table of some of the major share purchases made by company leaders in recent days, as well as those of directors of listed mutual funds that offer investors exposure to a spread of shares.
They include large share purchases by the bosses of FTSE250 companies Plus500 (a financial company) and IWG (an office group) – and by directors of investment funds Syncona and RIT Capital. Gal Haber and Alon Gonen, co-founders of Plus500, have just purchased tranches of millions of pounds of shares in their company at a combined cost of over £ 8.75 million.
The purchases, made at £ 8.04 and £ 8.35 per share respectively, seem smart so far as the share price has risen to over £ 10. It represents a paper gain for Haber and Gonen of over £ 500,000 and £ 900,000.
However, for Thomas Henderson, a director of Syncona, a trust that invests in healthcare firms, his £ 2.47 million share purchase has not yet yielded any paper profit. Shares in the trust are currently trading at £ 1.93 compared to the £ 2.47 price Henderson paid – a paper loss that has been close to £ 600,000 so far. The same goes for Philippe Costeletos, a director of £ 2.5 billion trust RIT Capital.
His investment assignment is to preserve shareholder capital, but his recent purchase of £ 504,000 – a 9 percent saving on the January 2 price – has fallen 10 percent since then. As SJ Bell’s Suter says, “It is very difficult for even knowledgeable executives to get an idea of what will happen next.”
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us to fund This Is Money and keep it free. We do not write articles to promote products. We do not allow a commercial relationship to affect our editorial independence.