The net result is that we can all track the director's shareholdings in any listed company. This, of course, gives rise to a lot of interesting information which is rather glamorously labelled "Insider Activity" and while a lot of directors are just as bad at timing the buying and selling of their own shares as everyone else, and, most of the time, don't have any insider information at all, sometimes it is a real eye-opener and a very useful lead indicator. Directors would have to be stupid not to have a better feel for the fortunes of a company than us, so it is always worth watching.

Of course, the risk here is that shareholders slavishly respond when they see a director buying or selling, assuming that they did so because they think the share price is going up when they buy and down when they sell. But there a few things you need to understand.

1. A lot of directors sell shares to finance something, for personal reasons, not because they think the share price is going down.

2. When a lot of directors sell or buy at once it is not necessarily a strong statement about the share price. It is often because they have what are called blackout periods when they cannot sell; before results would be an obvious one. Most directors only get a few windows during the year when they are allowed to buy or sell.

3. When directors buy, it is rarely an on market purchase. Most of the time directors are getting 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, as a bonus or through the maturing of options. What you want to look for are director transactions that are "on-market" transactions, bought with cash, and if they only buy a small amount, don't dismiss it - it often means more when a poor director buys shares; it is more significant than a rich director topping up.

4. Then there are the initial director shareholding notices. Always worth a look to see if the new chief executive has been given a lot of shares or options to motivate them. Good if they have.

Companies we should have sold on the back of director sales in the last year or so included Bellamys, Sirtex, Aconex, Healthscope, Vocus and Brambles. 2016 was riddled with "Insider Activity" and when you look at the charts and the timing of the director sales in the companies above, especially Bellamys and Sirtex, you will want to check director sales every day, especially in midcaps.

Directors are highly sensitive to the share price. Knowing that they are selling, in the full glare of their own shareholders, is a very interesting bit of information. When directors have decided that the stock market has become too enthusiastic about the value of their company, you want to know.

As such, tracking director transactions is a standard check for any fund manager deciding whether to invest in a stock, particularly in small and mid-cap stocks. They would also want to get their head around who the substantial shareholders are, who has the power, who has the influence and whether the management are free range, able to do what they want, or hostages to some founding family shareholder that can call the shots from the amateur back benches. Important to know. Who owns this company and who runs it? Hopefully, for the sake of investors, they are the same.

How do you track director shareholdings? Well you could, as some brokers attempt to do, employ some junior to scan the thousands of PDF announcements a day, open them up and summarise the director shareholding change daily, a process that has to be done manually. Or you can find someone to do it for you. One such website providing this service is called Market Index. I have no connection to it but find it a good place to track director activity.

Marcus Padley is a director of MTIS Pty Ltd and the author of the daily stock market newsletter Marcus Today.