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Ancora would prefer to invest when management is buying, as
insiders are usually a strong indicator of value and/or future
growth in a business. Insiders are typically value investors and
already incentivized through stock options, restricted stock or
family stock ownership. When senior managers or directors
add meaningfully to already sizable holdings, it can be an
indicator of market mispricing or near-term positive trends.
Insider selling can serve as a warning
signal in certain cases, and the circumstances around insider
sales are considered on a case-by-case basis. Management may
sell for diversification purposes or to fund a
sizable personal financial commitment. However, there are
instances in which management is selling in order to take
advantage of market mispricing when valuations are too high or growth is beginning to stall.
Ancora examines past share price performance after management
selling in a particular company, and the reputation and
motivations of the management team, prior to making a decision
based on sales by management.
Finally, we want to invest along
side management teams that have a significant ownership stake in
the business with a long-term view to realizing value. We do not condone the use of lavish stock option packages and
would prefer to invest with management teams that have put
personal capital at risk. Alignment of incentives is key in ensuring that management is making the
best possible decision for all shareholders.
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