Jennifer's avatar
$23.1m follower assets
Pumpers & Probabilities
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@wtibull is well known among EFT & COM for his trenchant humour. He’s a favourite follow of mine, not just for his sharp takes on the energy industry, but usually he succeeds in making me laugh at least twice a day. His tweet today regarding “investment advice” was one that everyone should take some time to consider.

Several companies that I have invested in were names that I had seen discussed on social media. Information is abundant and sometimes FOMO can be a real struggle, even for experienced investors. I wrote about the dangers of blindly following suggestions without performing proper due diligence in my August 6th Commonstock post, “O’Hare & the 80%” (link below). However, between WTI’s clever tweet & numerous questions I have had posed to me lately, I felt the topic was certainly deserving of another post.

If you invest in the junior mining sector, I hope you don’t have to learn the hard way – because I did, and painful lessons are the ones you remember the most. It’s great to discover interesting opportunities but no one wants to get burned and I’m hoping this information will improve your odds of success. (Not investment advice) 😉



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Occasionally I am shocked and dismayed to meet an investor who is unaware of the infamous “Pump & Dump”. If you are such an individual, please read Investopedia’s article on it and do the best you can to familiarize yourself with the scheme:

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We all like to talk about our investments and discuss them with others or we wouldn’t be here. I often feel like trading without Twitter & Commonstock would have been a completely different and less positive experience for me – not nearly as entertaining and likely not as profitable. Unfortunately, there are dangers that lurk, it's up to us to spot them and we all need to accept personal responsibility when we hit the buy or sell button.


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If 43% of the world's public mining companies are listed on the TSX/TSX-V and extractive industries are the most prone to corruption, you can see that statistically there is a need for extra vigilance here.

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Here are my TOP 10 suggestions for avoiding the traps that many easily fall for:

  1. Work under the assumption, correct or not, that 90% of the juniors you are considering are “lifestyle companies” (see below). Work hard to find the 10%.
  2. Use SEDI. Religiously.
  3. Read this: https://www.cruxinvestor.com/articles/junior-mining-companies-failure
  4. Use SEDI. Religiously.
  5. Keep a database of both reputable and disreputable names and ensure you consult it before you invest. This includes names of management as well as social media accounts prone to suggesting poor investments.
  6. Use SEDI. Religiously.
  7. Note tweets that use triple tickers. If I tweet about a stock, I won’t be including its OTC ticker or American counterpart.
  8. View chat board negatives as a positive. Lots of stock promoters lurk on chat boards and do some vigorous cheerleading. Ignore the positives and focus on negative comments that can raise red flags.
  9. Watch for press releases that include LOI’s or MOU’s that state they are non-binding. If it’s not legally binding, it is not worth the paper it is written on.
  10. If insiders are selling, then you need to seriously consider selling too. If they aren’t a believer in the future of the company then why are you?

What’s a lifestyle company?
Basically it’s one where management is living off of shareholders’ money. They’re easy to spot because they frequently grant themselves options and then sell shares on the public market at a higher price. I understand the argument regarding the value of executive compensation or occasional personal expenses, such as a new home. However, “lifestyle company” often includes management where this becomes a regular practice – and not just at one company but at several.

See my post regarding SEDI here:


Have you ever seen something and once your eyes have been opened, you can’t unsee it?

Like the arrow in the FedEx logo?

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Or Cookie Monster hiding in this religious icon?

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Once your eyes have seen the telltale signs of a P&D, it’s very hard to unsee. By learning what to spot, your probability of success is significantly improved.

Best of luck with your investments, I’m happy to share ideas but none of it should be construed as investment advice.

Cheers!
Guilherme Moraes's avatar
Another excellent text, I am very happy to have found your profile on this “social network”. As for the insiders, I disagree. It is not because a director sells his shares that the company is “bankrupt”. he can sell it to make another investment, to use it for a trip, for shopping, for health treatment, to pay child support, so as not to be left with so many shares and enjoy life a little. The options are endless. As for FOMO, yes, it is very difficult to get rid of it. My suggestion is way before that. The zeal in the care and monitoring of companies, combined with diversification (powerful for small and large investors) will make all the difference in the long term. We are full of biases, we ask for advice and, in many opportunities, we are trapped by analyzes of seconds to buy or sell a company because some “guru” said so. Come on! We are going to treat the issues more seriously, after all, investments are for our future. It is unacceptable to waste more time choosing a TV or a car or a cell phone than choosing to be a partner in a company. After choosing the companies closest to what we believe to be correct, it is time to define the % of exposure, monitor the quarterly results and buy - monthly - to those whose % is furthest behind.
Jennifer's avatar
@guilhermehnmoraes Thank you so much, Guilherme - I'm glad you're enjoying some of my content. I'm curious - do you often buy stocks on Canadian exchanges? I think we are exceptional in terms of the number of extractive industries listed on the exchange, as well as less stringent listing requirements. I wrote a guide to Canadian exchanges here: https://commonstock.com/post/bf5e504c-f0bb-4118-9850-0dff703aeeee
I mentioned in my piece that "I understand the argument regarding the value of executive compensation or occasional personal expenses, such as a new home. However, “lifestyle company” often includes management where this becomes a regular practice – and not just at one company but at several." Unfortunately it's common for Canadian listed juniors to have management that frequently participates in these types of schemes - rather than a "one time" event for necessary life expenses.
You may have noticed that most Canadian mining companies are based in Vancouver. Even the Vancouver Police Museum has a section decimated to "The Vancouver Stock Exchange: A Legacy of Fraud and Money Laundering". We can only hope that one day prosecution frightens perpetrators enough that they no longer commit the crime!
Guilherme Moraes's avatar
@jennymanydots From the Canadian industry, I only follow Ab Inbev (owner of Labatt) and Lululemon (retailer, but listed in the US). Focus 66% on Brazil and 33% on the US (Nasdaq and NYSE + ADRs). I understood your point about insiders, but we cannot generalize, because today many technology companies, for example, pay people with salary and shares (the famous SBC - Stock Based Compensation). In this type of compensation, people are “stuck” with the company's shares for a certain period of time and only then can they sell. In this way, I imagine that many regularly sell their shares. I attach little importance to this movement, because, if it really mattered, few companies would be listed (IPO), after all, if the business is so good, why open it to partners and have all the boring market regulations. It is much more important to see revenue growth, operating margin gains, buybacks and scalability! Regarding mining, I like VALE (a Brazilian company and one of the three largest in the world, alongside BHP and Rio Tinto). She is very interesting and has long term security. The caveat? China (a large part of its revenue comes from that country, that is, if it slows down, it also slows down). As for the oil companies, many holders “turn their noses” because of the ESG, considering that oil will be our main energy over the next … 50 years? Here we have the company PRIO (oil company), but I don't believe it's listed there in Canada. It is a small company by international standards, but it has been delivering monstrous results, from low extraction costs to increased production with improvements in the field. I don't have a preferred sector or stock, I'm looking to diversify into several quality and growth companies! As I am not (and never will be) smarter than the market, I buy monthly for the companies I choose! I will be following market feedbacks throughout 05/10/15/... eternity!
M S's avatar
FYI: SEDI is a hassle to use. ceo.ca is way better at showing insider trading and filings.

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