If you could choose someone to guide your investments, whom would you pick? I the absence of Warren Buffett or Anthony Bolton, might not the people who run the business be the perfect choice?

Not surprisingly, the share dealings of company directors in their own companies are keenly watched by many investors, both large and small. The details are freely available through websites such as those of the London Stock Exchange, Hemscott, Citywire, Digital Look and ADVFN.

But whether these deals tell outsiders anything useful remains open to question, even among professionals. Gervais Williams, who runs a number, who runs a number of smaller-company funds for Gartmore, the investment management group, says: "Directors know more about their businesses than we ever know."

"There are times when the deals are irrelevant to the business because the director is having to finance a divorce or is contributing to a regular savings plan, but there are times when they deal in size and it can be a useful signal, positive or negative. Of course, I wouldn't expect the company to announce a profits warning immediately afterwards, although there have been cases where this has happened."

One such case involved Malcolm Walker, the founder of the Iceland food chain. He unloaded shares worth £13.5 million weeks before new management issued a profits warning that sent the share price plunging.

The danger flags are seldom this clear. Mr Williams says that a single director's dealing is normally a less reliable indicator than when several directors act in a similar way over a short to medium period. IT is also important to know how the size of the deal compares with the existing wealth of the director and how well he has dealt in the past."

But while Patrick Evershed, an experienced fund manager at New Star, also takes a keen interest in directors' dealings, he retains a healthy cynicism. "It can be misleading when directors sell," he says. "There is usually a very good reason for the sale, such as a divorce settlement or a move to a new home.

"When you ring them up, they always have a very good reason. Sometimes it is also complete nonsense. I can think of one case where a director said that he had a large tax bill to settle and three months later the company announced a profits warning."

Pete Hahn, a Fellow of Cass Business School in London, believes that it is possible to make money by following insiders. As a former managing director in the UK corporate finance diision of Citigroup, the world's biggest bank, he should know.

Even so, the outsider should not buy indiscriminately, Mr Hahn suggests. "You could make quite a bit of money playing with insiders who are party to a specific bit of news coming up," he says. "But I would not take that as a universal truth. Management does have a tendency to be optimistic."

He points out that what directors think is good news may not be interpreted that way by the market. The shares may not react as expected.

Nevertheless, academic research suggests that share buying by insiders before an important announcment can be a reliable indicator of good news, Mr Hahn says. One classic example he cites is when six members of the Marks & Spencer board spent £1.1 million buying shares in the retailer in September 2005. The next month Stuart Rose, the chief executive, and his colleagues were significantly richer after announcing the group's first monthly sales rise in nearly two years.

Sometimes, though, the picture can be muddied by share options, which are a near-universal part of senior management's remuneration these days. If the directorshave done well, options can be "exercised" at a price well below the market value, locking in substantial profits for the lucky recipient.

Given that they are part of a manager's pay, share options may be viewed in a different light to shares that are bought personally. But Mark LoPresti, who monitors directors' trading in the US for Thomson, the data group, says that fear and greed drive attitudes in this like everywhere else in investment.

"The reality is that you have to look at the trade in the context of the stock price," he says. "If momentum is rising, then you would expect that to continue. If the stock price is slowing or falling, then the sale of the option is a negative factor, particualarly if it has come off a peak when the option holder didn't sell."

Mr LoPresti quotes the case of Oracle, the US software group. Its shares had fallen from about $14 and then recovered to the previous level in early 2005, prompting a wave of options-selling by management. That presaged a period of nearly a year when the shares underperformed America's S&P 500 index.

"You have to look at where the stock is now and where it was before," Mr LoPresti says. "Is the stock facing difficulty breaching a level it had breached before?"

When shares hit a new high, insiders act like retail investors and sell. "They get a little shaky and a little skittish and take their money off the table," he says.

But there is no easy formule. Mr Hahn says: "It's not like every time you see a director buying their shares you should follow suit. I don't think that there is a model to follow. I would rather invest in companies in which directors are building stakes with their own cash.

"Nothing focuses a management team as much as having their own money in the game and suffering like the other shareholders."

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