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How do I get a handle on Insider Ownership? It is very important to have a handle on insider ownership with these companies. If insiders own more than 50% of the company, than they can and will make all of the decisions, and other shareholders votes will be useless. This does not necessarily mean that we will be sticking around long enough to vote on important issues, but it is important to be aware as we often see management make poor decisions, and a kind of shareholder revolt that can really move a stock. Sometimes stocks are almost completely controlled by management, and when a company like this is doing great, we do not mind tagging along for the ride. Institutional and mutual fund ownership is rare in the world of Penny Stocks, but when we do see substantial big money interest, it can often be a great sign. Sometimes, however, companies strike a deal with smaller firms to hold a tiny amount of shares, just so they can show institutional ownership. Thankfully, transparency has evolved to the point that we can see exactly how many shares this firm is holding, and it is important to multiply this number by the current price to gain a real perspective as to exactly what kind of an interest they may have. Why do I care about a companies Transfer Agent or it's Contact Info? This can sometimes be helpful in smaller companies with large amounts of shares outstanding. You can call the transfer company and obtain a physical copy of your ownership record, or stock certificate. This will keep your shares from being lent to short sellers by your broker. Contact the company directly or their investor relations firm if you do not understand something they do, see a discrepancy in their financial statements, or need to know how many shares they have outstanding. Do not call the company for a pep talk, or to complain, as you are taking time away, and potentially taking profits away, although that may be a little extreme. The most important thing not to do is to call as a final decision maker, as talented CEO's can steer you in their direction every time, and you can leave the conversation feeling euphoric and ready to buy no matter what, which can sometimes lead to a long and painful relationship. How important is it to read Press Releases and SEC Filings? This is the most important aspect of determining the fundamental fitness of a company. Be sure to recognize the difference between press releases from the company, independent news stories from other sources, and SEC filings. The only thing we should take from Press Releases are the facts, which are often light, and maybe how investors react. We can take a little bit more away from independent stories, however, be sure to determine whether or not the release is actually unbiased. Biased reports will disclose exactly how much they were paid directly from the company or via a third party within the document. This is often found at the very bottom in smaller typeface, and these reports are often mass distributed via Email, fax or other means. We do not engage in this sort of activity, but it is important to keep in mind what level of hype may be out there, and how it may move the stock. SEC fillings are by far the most important documents to read. If we were on a Dessert island, and could only receive one data feed concerning our investment, SEC fillings would be what we pick hands down. Think of it as looking to buy a local business in your community, whereby the first thing you would want to see is their financial statements. Try and remember that companies try to find a healthy mix between making their company look good to potential investors, and crunching the numbers in a way as to pay the least amount of taxes. Look at all of the numbers in relationship to each other, and when in doubt, always fall back on, and rely on these numbers. Integrity in the market place has gotten a lot better recently, and although there is nothing to stop firms from outright lying about their results, SEC fillings are the best we have to go on. Be sure to do a search for the companies auditors to see if they have a history of getting in trouble. In a worst case scenario, relying on false SEC filings will at least make you a candidate for a shareholder lawsuit, should these documents prove to be false. Bottom line, know your company inside and out, examine every document you can find, and leave the hype, rumors and insider information for management to deal with. |
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