1-Insiders are Canada’s and America’s most informed investors. Insiders, who are the officers and directors of companies are the most informed of any investor as to “goings on” and activities at their companies. Naturally, officers are more informed than directors as they are overseeing operations every day, directors are informed but on a more quarterly basis. The fact is they work right there at the companies and are quite knowledgeable. The primary reason for this article is the fact that while the officers and directors of the large industrial stocks are very heavily to the sell side, the officers and directors of the Canadian Junior mining stocks have been ten to one buyers of their companies’ shares. That is what we want to see.

2-“So Little Coverage.”Since there is so little comprehensive research coverage available on most mining stocks, often the primary and sole indicator of value is the officers buying or selling their own companies’ shares.

3-Ownership is more important? In most companies, our conclusion has been that ownership by officers and directors is more important than their only buying the shares. I dare say that if the officers own a large percentage of shares in a company, it is a good indication that their primary interest is the performance of the company’s stock price. Yes, we consider that heavy ownership to be more important than recent buying.

4-What is large ownership by officers? For the junior and small cap mining stocks, we often find 18% to 45% and more of the shares owned by officers and directors. That high percentage is a very positive signal for investors! However, a large percentage of shares is not the only gauge although it is probably the most important indicator with the insider buying and selling as a key signal.

5-We also like to see the officers and directors’ ownership and officer buying coupled with officers’ salaries at reasonable levels. We still find too many companies whose officers seem to consider the company as their own private fiefdom paying them a generous salary. Moreover, some officers and directors believe that their primary purpose is to keep the company in business primarily for the continuation of their salaries. We don’t list them here for obvious reasons.

What can make it worse is that we find companies that may be selling at multi-year price lows and at the same time their insiders are not buying the company’s shares. What kind of message does this send to investors? Certainly it is not a signal to “invest in this stock.”And at the same time their officers are taking high salaries that in many instances are not justified. We have received emails and phone calls complaining of these situations.

6-Insiders, particularly those at the smaller companies do not want shareholders nor the investing public aware that they are heavily selling their own companies shares. It sends out a very negative signal often leading to severe price declines.

7-Stocks listed on the Toronto Stock Exchange, Toronto Venture Exchange and the CNSX generally have a far larger percentage of ownership by their officers than the large capitalization companies listed on the New York Stock Exchange and other large world exchanges. But of course the fact is that it is far easier to buy a large percentage of a low cap junior than large cap company……much lower prices per share and less shares outstanding.

8-What to look for in the insider reports of purchases and/or sales: Unanimity, how recent? stock price at time of insider purchases or sales, size of trades, dollar value of the transaction(s) etc.

9- Best places to look up the insider buy and sell transactions? For Canadian companies, go to www.sedi.ca which is free but requires that you register and www.Canadianinsider.com which will give you the last ten trades by insiders for Canadian companies.

10-Do the officers and directors sometimes buy their own shares if they know that the company is about to be “taken over?” The answer is No! Unless they want to spend their trading profits after a “stretch” in prison because they will get caught.

Years ago, officers and directors occasionally got away with it. Today, it is rare. But human nature never changes so from time to time, it happens. But the bottom line is that if you see a large purchase by an officer or director of a company, it is not a signal to interpret that a takeover is imminent, rather that the stock is believed to be undervalued by that insider at the time of the transaction. Heavy volume Insider buying in individual stocks is a strong signal for value, it is not a timing tool.

11-***How quickly are officers and directors required to report their purchases and sales of their own companies’ shares? In Canada, they must report their transactions within 5 days, that is five days and not five business days. The clock starts from the day of the trade. In the US, the transaction must be reported within 2 business days. That is two business days from the date of the trade not counting weekends or holidays. For example, if a US insider sells shares on Friday, he or she must file a report by the following Tuesday. And if any insider in North America fails to report, he/she is in violation and faces prosecution. It could be time in the “Big House.”

12-HOW MUCH BUYING OR SELLING BY INSIDERS IS WORTH YOUR (OUR) ATTENTION? It depends, there is no consistent answer. Generally, the more buying the better and the less selling the better. It is not mathematics nor engineering, it is a melange of psychology and value analysis. As well, the amounts that we use to determine whether or not we determine the amount bought or sold to merit our “insider analysis” attention can depend on whether the company(s) is a small cap (junior) or a large cap.

We particularly note when we find insiders buying in amounts at least equal to two to three months of their salaries. We want to find large purchases with few if no intervening sales. We want companies whose officers have “skin in the game.” A “Question”!! Do options have an effect? Yes, and as far as options go,we want to invest when the management options are at prices well above where we are buying it. That puts some management performance “skin in the game.”

We are going to commence regularly with a list of companies that first and foremost meet all of our fundamental requirements that are selling at or near their price lows that have in our interpretation “recent and interesting insider buying.” We will do our best.

Bob Pellerin