Dicker’s statement went on to explain he retains a 33.6 per cent stake in the business and his role focused on company strategy won’t be hit by the sale of what amounts to a 1.6 per cent stake in Dicker Data.
To ram home the point, Dicker listed the items he will spend the proceeds on: Rodin Cars, a pre-loved Bombardier Global XRS private jet, and some US stocks.
You can feel Dicker’s exasperation in the statement and to some extent it’s understandable.
Dicker has used his own cash to buy some trinkets, rather than putting such baubles through the company accounts, as has been known to happen. And he’s still got a huge amount of skin in the game.
Is Dicker Data really 20 per cent less valuable than it was last week, simply because the founder owns a smaller stake? Or is this an emotional overreaction by investors, who tend to detest any insider selling for any reason?
Leaving aside the fact Dicker Data is extremely tightly held and so even a small amount of selling might have exacerbated the size of the fall in the stock, certainly Dicker himself appears to be suggesting emotion has played a part.
But there’s logic too. Leaving Dicker Data aside and looking at insider selling more broadly, investors are right to value strong alignment between their interests and those of company insiders, and will naturally look very closely at anything that weakens that bond.
Further, investors quite rightly assume that insiders always have more knowledge about a company’s future prospects than they do and so insider selling is a market signal that needs to be interpreted.
The interpretation may be that the insider is selling at the top. History says company founders have been good sellers, although some notable exceptions include Afterpay founders Anthony Eisen and Nick Molnar, whose sell-down in 2020 now looks like arguably the most costly founder share sale in recent Australian corporate memory.
Another interpretation of an insider share sale is that it represents the start of a bigger sell-down, and so there could be a lingering overhang in the stock; investors might decide they’re better to get out while the getting’s good.
But with the right disclosure, investors might see an insider sell-down is nothing to worry about. A sale prompted by a divorce, or a tax bill, or a 68-year-old company founder deciding to spend his money on some nice toys, is unlikely to be seen as a signal that the founder is calling the top and taking money off the table.
Dicker Data shares rose 6 per cent in early trade on Wednesday.
The key is disclosure. Had Dicker revealed his plans for fast cars, a fast jet and cool stocks on Friday, might the sell-off in Dicker Data stock have been avoided? It’s possible.
One more difficult area is where a company insider sells to diversify their interests. While this seems entirely logical, fund managers who prize diversification in their portfolio seem to be sceptical of founders who seek this.
A proposed solution, being examined by Parliament, is to adopt a model used in the US, under what’s known as US Rule 10b5-1, whereby insiders inform the market of their intent to sell an amount of stock over an extended period, and then use a broker to sell small parcels of stock at regular intervals.
The benefits for insiders are obvious – no need for messy, disruptive and potentially embarrassing block trades, like the one David Dicker has just done.
But the regime is not without concerns for investors. Some worry insiders time company announcements (delaying bad news, for example) to maximise their gains on an upcoming sale. There is also a concern that share sale programs can suddenly be suspended or terminated if stock price movements aren’t favourable.
Indeed, the new chairman of the US Securities and Exchange Commission, Gary Gensler, said in July he wants the SEC to “freshen up” Rule 10b5-1 in response to these issues.
The Dicker Data example shows that Australia’s system of insider selling can be subject to emotion and misinterpretation that can be potentially disruptive.
But our system is also based on the simple idea that the price for accessing public markets is disclosure – insiders that get that disclosure right give the market the best chance to interpret their sale in the way they hope it will be received.