Insiders Grabbing Morgan Stanley Stock With Both Hands

| June 22, 2009 | 0 Comments

This weekend, I was talking with friends about the market.  They had just set up a retirement plan at the office.  Their excitement was palpable.  You could feel the energy as they asked questions about the market and discussed plans for retiring early.

Eventually they got around to asking the $64,000 question, “What’s the secret to investing?”

It never fails.  Everyone’s looking for “The” secret to making money in the market.  Just take a look in your local bookstore… you’ll find dozens of books written on this very topic.  Do a quick online search and you’ll no doubt run across a few dozen forum junkies announcing they’ve discovered the secret.

The truth is, investors have a number of strategies for making money in the market.  It all depends on your temperament, risk profile, and time commitment to the market.  Are these secrets?  I’m sure some of them could be.

I guess only you will be able to tell me if it’s truly a secret.

So, what’s the “secret” I’m talking about today?

It’s an interesting investment strategy I came across early in my career. Some old time investors swear by it.  Other investors dismiss it out of hand.  It involves mirroring the actions of very intelligent and knowledgeable traders.

Of course, I’m talking about the “Insider Buying Strategy”.

Really quickly, the insider buying strategy is when investors track the patters of buying by a few key groups… top management (CEOs, CFOs), board members, and of course, large stock holders.

When a member of any of these groups wants to buy or sell company stock, they have to report it.

So, if your CEO or CFO starts dumping their stock, you’ll be the first to know.

I can see your wheels turning.  This information is hugely valuable.

Clearly, insiders like senior management, the board, or major owners of the stock are going to know the company the best.  They’ll know all the ins and outs of when things are going well, and they know where all the bodies are buried too.

So this investment strategy is a simple one… if you see this group start buying the stock, then we jump on board and buy too.  And if they’re selling, then you should be selling.

Sounds nice and easy, but let me add one more twist.

Remember, an insider can be selling stock for any reason.  They might be diversifying their investments.  They might be sending a kid to college. They might be buying a new home… the reasons for selling are endless.

But when insiders buy, there’s only one reason – To make money.

Let me give you an example.

One company I follow is seeing huge insider buying by a major investor. They currently own more than 20% of the company… and they’re buying more.  Who’s the company?

Morgan Stanley (MS).

As you can imagine, now’s a tough time for the company.  The banking industry isn’t exactly a robust one right now.  But one insider is scooping up shares left and right.  In the last 30 days, the Mitsubishi Investment Fund bought $470 million in stock.

And that’s after converting their investment from last year into $700 million of common stock.  Talk about having faith in the company.

I don’t think you could get a better sign.

It’s like a blinking neon sign screaming, “BUY ME!”

As the market recovers, and Morgan Stanley starts improving performance, the investment by Mitsubishi is going to look like the buy of the year.  Don’t be afraid to take your cues from savvy investors.  Now looks like a great time to pick up some shares of Morgan Stanley.

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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