One of the best Mutual Fund managers in America, Peter Lynch, once wrote in his best-selling investment book One Up on Wall Street that “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” ‘Insiders’ is a blanket term used to describe the CEO, directors as well as substantial shareholders (deemed to own more than 5% of the company’s shares). Insiders are required to disclose their trades to SGX within 2 business days and the disclosure can be found from either the SGX website, the company’s own Investor Relations webpage or through other information-aggregation services.
But why should we bother with insider buying? Besides Peter Lynch’s easy-reasoning, a peek into insider buys might also clue you in to potentially positive future developments in a company’s business. After all, chances are slim that insiders would risk their own money to purchase even more shares of a business that they know is going downhill – and they should know the business much better than the average investor.
Let’s take a peek at some of the insider buying that is going on in Singapore. The CEO of First REIT’s manager, Dr. Ronnie Tan, purchased 749,000 shares at an average price of $1.04 in Dec 2012 and Jan 2013. That could be a stamp of approval by Dr. Ronnie Tan on First REIT’s future performance as their acquisition of 2 hospitals and 1 hotel in FY2012 is “expected to further boost First REIT’s gross revenue and net property income” in FY2013, according to their earnings announcement for FY2012. First REIT’s current also has a Distribution Yield of 6.7%, which is higher than the 2.9% yield of the FTSE ST Real Estate Index (SGX:FTSAS8600).
The construction and property development company, Chip Eng Seng (SGX:C29), also saw strong insider buying recently as a substantial shareholder, Mr. Tan Yong Keng, spent $5.72 million to purchase 7.8 million shares over 5 days. Chip Eng Seng has a Dividend Yield of 5.01%. In their 3rd Quarter earnings announcement, the company stated that their backlog for construction contracts stood at $645 million, securing future revenue streams for their construction segment.
Studying insider buys might just throw up some interesting investing ideas for you. After all, we at The Motley Fool seriously doubt anyone wants to invest to lose their money!
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.