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'Buy into companies where the directors have a big stake' is a common piece of stock market advice. The theory is simple: with plenty of their own money tied up in the company, the management won't do any thing stupid and the 'owner's perspective' will benefit shareholders over the long term. Sadly, reality paints a different picture. Big director shareholdings do not make a difference to investment performance. Indeed, data from the last five years suggests the smaller the boardroom holding, the better. Percentage game The table below shows the 30 FTSE 350 shares with the highest percentage boardroom ownership as at 31 July 1998, plus their subsequent five-year share price performances. (Note: dividends and spreads are ignored. Where companies were acquired, the performance is measured to the share's final trading day): The next table lists the 30 FTSE 250 shares with the lowest boardroom percentage holding as at 31 July 1998: Had you doggedly held on to the top 30, you'd be 7.2% better off. But had you held on to the bottom 30, you'd have witnessed a 13.5% gain. Big money The next table lists the 30 FTSE 350 shares with the largest monetary boardroom stakes as at 31 July 1998, plus their subsequent five-year share price performances. (Again, dividends and spreads are ignored. Where companies were acquired, the performance is measured to the share's final trading day): And now the bottom 30 shares, ranked on the monetary value of the directors' holdings: The top 30 average came to -0.4% while the bottom 30 produced a very generous 28.8%. Yet more encouragement for low director holdings. Tweaking Just like prisoners of war, statistics can tell you anything with a little tweaking. So here's how the average five-year performances stand up if the top and bottom 10 and top and bottom 20 shares were used: Top 30
Company Director Five-year
holdings share performance
(%) (%)
Galen 64.6 72.9
Business Post 64.6 (38.9)
Pentland* 56.8 52.1
JJB Sports 51.6 (7.1)
Computacenter 46.6 (45.5)
N Brown 45.8 (23.4)
MyTravel 39.5 (91.2)
Wilson Bowden 38.8 76.8
Alliance Unichem 36.6 (17.4)
Redrow 35.3 144.1
Brake Brothers* 30.4 (11.4)
Chelsfield 29.2 14.1
Stagecoach 25.9 (67.1)
Man 23.4 247.3
Perpetual* 23.2 (3.4)
JD Wetherspoon 20.2 (10.5)
Amvescap 19.8 (31.3)
TBI 15.6 (47.3)
Manchester United 14.1 (2.7)
Johnston Press 13.5 127.3
Shire Pharma 12.6 (2.1)
Sage 11.7 13.3
Admiral* 11.7 8.0
Yule Catto 11.4 23.6
De Vere 10.4 (10.7)
Travis Perkins 10.4 169.3
TT Electronics 9.0 (48.9)
Independent Insurance 8.8 (100.0)
Ashtead 8.8 (93.5)
Cox Insurance 7.7 (81.5)
Average 7.2
(*Acquired)
Bottom 30
Company Director Five-year
holdings share performance
(%) (%)
Orange* 0.0112 228.6
Natwest* 0.0111 29.4
Royal Bank of Scot 0.0111 90.6
WH Smith 0.0110 (24.9)
Thistle Hotels* 0.0109 (40.1)
British Energy 0.0104 (99.3)
Billiton 0.0103 193.7
BP 0.0094 3.1
Abbey National 0.0086 (51.5)
Signet 0.0080 152.8
Balfour Beatty 0.0075 48.4
Centrica 0.0064 85.7
RSA 0.0063 (77.3)
Cable & Wireless 0.0062 (84.5)
Railtrack* 0.0056 (83.1)
National Power* 0.0053 (9.9)
Kelda 0.0051 (13.6)
Alliance & Leicester 0.0050 3.9
HSBC 0.0044 53.8
Sun Life* 0.0044 (13.4)
BT 0.0044 (68.1)
Shell 0.0043 (1.7)
Telewest 0.0043 (99.0)
Norwich Union* 0.0041 8.1
J Sainsbury 0.0040 (50.5)
Unilever 0.0037 (15.5)
BG 0.0021 157.4
Halifax* 0.0020 10.6
Woolwich* 0.0015 11.3
BSkyB 0.0001 61.2
Average 13.5
(*Acquired)
Top 30
Company Director Five-year
holdings share performance
(£k) (%)
Amvescap 900,306 (31.3)
MyTravel 806,195 (92.2)
Stagecoach 804,454 (67.1)
Alliance Unichem 614,880 (17.4)
Computacenter 597,878 (45.5)
Galen 343,026 72.9
Perpetual* 272,832 (3.4)
Business Post 260,984 (38.9)
Hays 251,284 (55.4)
N Brown 238,618 (23.4)
Sage 222,651 13.3
JJB Sports 220,332 (7.1)
Man 216,216 247.3
Wilson Bowden 205,640 76.8
Pentland* 193,120 52.1
Chelsfield 191,552 14.1
William Morrison 148,176 38.0
Schroders 145,447 (43.7)
De Vere 137,800 (10.7)
Carlton 129,983 (66.6)
Brake Brothers* 124,944 (11.4)
Redrow 106,606 144.1
Admiral* 106,470 8.1
JD Wetherspoon 99,586 (10.5)
SmithKline Beecham* 92,097 19.3
Shire Pharma 84,672 (2.1)
TBI 79,404 (47.3)
Misys 72,720 (52.5)
CMG* 72,053 (86.2)
Kwik-Fit* 66,675 (13.4)
Average (0.4)
(*Acquired)
Top 30
Company Director Five-year
holdings share performance
(£k) (%)
House of Fraser 235 (37.1)
Rexam 232 70.7
SMG 232 (55.1)
Medeva* 231 111.4
Highland Distilleries* 222 68.3
Arjo Wiggins* 212 53.2
Sun Life* 207 (13.4)
Arcadia* 201 12.2
Meyer* 191 71.5
Vickers* 187 34.9
Hillsdown* 184 (6.4)
Hammerson 183 33.1
Eurotunnel 156 (27.4)
Thorn* 147 2.2
WH Smith 147 (24.9)
Thistle Hotels* 146 (40.1)
Booker* 127 (22.5)
English China Clays* 123 33.6
Marley* 123 42.9
Wimpey 122 233.6
Selfridges 115 80.7
Kelda 100 (13.6)
De La Rue 97 (11.1)
Woolwich* 77 11.3
Telewest 68 (98.9)
Hepworth* 63 61.1
Signet 54 152.8
MEPC* 43 9.3
Balfour Beatty 40 48.4
BSkyB 9 61.2
Average 28.8
(*Acquired)
Percentage holdings Monetary holdings
Five-year return Five-year return
(%) (%)
Top 10 12.2 (30.1)
Bottom 10 1.4 6.1
Top 20 16.9 0.6
Bottom 20 (3.8) 27.4
Top 30 7.2 (0.4)
Bottom 30 13.5 28.8
Going on these results, it's clear a substantial boardroom holding has no real bearing on the five-year performance of the share.
On a monetary basis, all the evidence points to the smaller holdings out-performing the larger ones. Just ask the directors of Stagecoach (LSE: SGC), Computacenter (LSE: CCC), Hays (LSE: HAS) and MyTravel (LSE: MT), who collectively have managed to lose £1b since 1998.
In terms of percentage holdings though, the results aren't so clear-cut. The shares with the biggest management percentage holdings have generally done well, but it's hardly been a disaster for those shares with the smallest director interests.
In fact, there is one particular point that seriously puts into question the belief that significant boardroom shareholdings are a primary indicator of long-term investment success. Whichever of the 'least favourable' samples you'd have taken five years ago -- the bottom 10, 20 or 30 percentage or monetary holdings -- you'd have still handsomely beaten the market's subsequent 30% slump.
The author owns shares in Johnston Press.