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A thought on insider trading

After checking out a case of excesses in insider selling over the weekend There’s been feedback about both the case and the whole subject of insider trading. I’m going to pick up on the second one here, as I’ve said what I wanted to say about the first in mail replies.

The first thing (which I actually mentioned in passing in The IKN Weekly last week, so it’s still fresh in the memory) is that it’s easy to read too much into insider trading. For sure it’s an indication of what’s going on, but most of the time the trades reported aren’t that significant. The ones to take note of are few and far between, really. Things like McCluskey’s blatant sales are noteworthy, but as an example, here are two filings culled from today that are…well, they’re kinda interesting but I wouldn’t bet on either.

The first is from Franconia Minerals (FRA.to) which has a dubious asset or two up on the US/Canada border in that gabbro area in Minnesota.

Jul 27/09 Jul 24/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -3,057 $0.250
Jul 27/09 Jul 15/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -27,773 $0.250
Jul 27/09 Jul 24/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -6,943 $0.250
Jul 27/09 Jul 15/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -12,227 $0.250
Jul 16/09 Nov 07/08 Redleaf, Andrew Control or Direction Common Shares 97 – Other -601
Jul 16/09 Jul 07/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -5,902 $0.270
Jul 16/09 Jul 07/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -2,598 $0.270
Jul 08/09 Jun 30/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -153 $0.280
Jul 08/09 Jun 29/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -31,943 $0.270
Jul 08/09 Jun 26/09 Redleaf, Andrew Control or Direction Common Shares 10 – Disposition in the public market -153 $0.280


OK, so there’s selling here by the guy in question and that can’t be a positive, right? But is it a stock-moving episode? Well, probably not. It’s worth taking into account possible reasons for the sale (he wants to buy a new car, there’s a chance to buy a decent real estate property next door to where he lives, he has taxes to pay…could be anything). Secondly, FRA.to is a bit of a dog and doesn’t do much volume (the 3m avg is less than $15,000 a day), so it would take more than one trade to sell what he wanted to sell…and each trade has to be filed separately. So his sales are all spread out and give an overly negative impression. Hey, I’m not saying that there isn’t a reason to be suspicious here. FRA.to might be about to spring some bad news on the market, or it might not. I don’t know (and really I don’t care much, either). All I’m saying is that there are plenty of logical reasons as to why this selling pattern above may be perfectly innocent.

The second example shows inside buying. Here’s Cornerstone Capital’s most recent inside trade filings.

Jul 27/09 Jul 27/09 Loveys, David Indirect Ownership Common Shares 10 – Acquisition in the public market 8,500 $0.080
Jul 27/09 Jul 24/09 Loveys, David Indirect Ownership Common Shares 10 – Acquisition in the public market 8,000 $0.080
Jul 23/09 Jul 23/09 Loveys, David Indirect Ownership Common Shares 10 – Acquisition in the public market 25,000 $0.090
Jul 23/09 Jul 20/09 McKay, Hubert Glyn Indirect Ownership Common Shares 10 – Acquisition in the public market 1,000 $0.080
Jul 23/09 Jul 20/09 McKay, Hubert Glyn Indirect Ownership Common Shares 10 – Acquisition in the public market 10,000 $0.080
Jul 23/09 Jul 17/09 McKay, Hubert Glyn Indirect Ownership Common Shares 10 – Acquisition in the public market 5,000 $0.080
Jul 22/09 Jul 22/09 McKenzie, Colin Burgess Direct Ownership Common Shares 10 – Acquisition in the public market 8,000 $0.090
Jul 22/09 Jul 22/09 McKenzie, Colin Burgess Direct Ownership Common Shares 10 – Acquisition in the public market 12,000 $0.085
Jul 13/09 Jul 10/09 McKay, Hubert Glyn Indirect Ownership Common Shares 10 – Acquisition in the public market 44,000 $0.080
Jul 13/09 Feb 20/03 McKay, Hubert Glyn Indirect Ownership Common Shares 00 – Opening Balance-Initial SEDI Report


So the guy is buying, and that’s usually a good thing, right? When the people closest to the company action are willing to put their own money on the line in the from of shares, especially by buying on the open market and not exercising cheap options, that points to confidence within the company about its future, right? Well yes, that again is a possible and logical conclusion to all this. Can’t be a bad thing that they’re taking a bigger stake in their own game. But we should still mitigate this kind of action, too.

  • The stakes are small. At 8c and 9c a pop, all the trades you see lined up there come to less than $10,000.
  • Again, CGP.v does small average volumes, and filling orders takes more than it would for a highly liquid stock
  • Inside buyers tend to have patience, with few of them bothering to play the market and flip stock. What we might have here is a company that sees 8c as a cheap number when looking three to five years into the future. As such, there’s hardly any need for us lil retail dudettes and dudes to rush in after them. Plenty of time to assess this minor positive in the light of fuller DD on the company.
  • etc

So under normal circumstances, I wouldn’t have bothered publishing or talking about the two sets of inside trades seen above, as one should take care and not read too much into most of these things. Yes, they’re an indication, but no they’re not the be-all-and-end-all of future pointers for a company. The only ones I care about are the ones I mention and that’s after reading the daily digest page every day and filering dozens and dozens of filings…then, maybe one or two are worthy of note (like on Sunday). In the end, a much better indication of what’s going on at a company is contained in the financial reports. So read them and do some real DD, dude.

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