Heavy Insider selling of large companies, yet buying their exploration companies’ shares.

Comprehensive analysis requires monitoring of the “buys and sells” of the officers and directors personally owned shares. The bottom line is that they are the most informed of investors as they happen to work at the companies!
While general overview informational type research on most common stocks is readily available on the internet, thorough “buy or sell” comprehensive research for the majority of publicly traded companies does not exist. And there is less research today than in the past. We estimate that perhaps fifteen percent of all publicly companies have comprehensive type coverage in Canada and the United States. The situation today is the fact that research coverage is expensive for brokerages and banks to engage in. But investors can put the odds a bit more in their favor by taking an extra step of monitoring the insider buys and sells.

We monitor the insider transactions of the officers and directors (insiders) and search for stocks that we find have notable insider buying activity. If we are favorably inclined in companies that suddenly have insider selling of size, we take note and try to determine if it could justify further analysis or a change in our outlook.

As you may know, the officers and directors must report any buys and sells of their personally held shares within two days of the transaction. Failure to report any transaction is illegal.

While the large industrial stocks have reported some of the largest value of stocks sold by insiders during the past three months, in the mining sector we find large purchases by officers and directors indicating that they believe that their shares are quite undervalued.
Three weeks ago, we found officers and directors (insiders) buying approximately $14,000,000 worth of their own companies’ shares. At the same time, we found the officers and directors selling approximately $498,000,000 worth of their own companies’ shares. Recent weeks have still shown heavy selling and a moderate increase in buying. The total is still quite heavily to the sell side with the past week having approximately $401,000,000 in value of shares sold with approximately $41,000,000 in value of their companies’ shares bought.

We have a list of twenty nine Canadian mining companies that we follow. They are primarily the small cap junior exploration companies although several have production. The percentage of their “insider” transactions is heavily to the buyside. It is our “new indicator” with no history of accuracy and it is the first time that we are using it. However, we find that there have been 70 insider purchases of their own companies’ shares with only 14 sell transactions. Let’s see if it can provide us with guidance as to whether we are finishing a bottom in the mining industry. It may just work, we will see.

Thank you, K.C. Grainger and Bob Pellerin