Let the Insiders Hand You an “Unfair Advantage”

by Insider Alert Research Team

 Everyone in the stock market is looking for the ‘magic signal.’ That single factor that indicates an unequivocal BUY with guaranteed profits ahead.

The honest truth is there is no magic signal. You won’t find one by drawing lines on a chart. You won’t find one with a mathematical formula. And you certainly won’t find one by using the ratings of the big brokerage houses.

The financial markets are probably the most-competitive field of endeavor on the planet. There is a lot of brainpower and financial muscle trying to “win.”

You need to look at the market differently to beat it.

One of the best predictors of wealth creation is ownership by the people in charge. Hardly anyone focuses on ownership.

It’s a simple thing, yet nearly all the financial world’s eyes focus on everything but this. By following the signals of the ‘people in the know,’ you dramatically increase your chances of making a profit.

That’s why we follow insider buying.

The Inside Track

The fact of the matter is there are always people who know more about a company than you can glean from months of reading financial statements and industry reports. People with more knowledge than the most highly paid and qualified professional analysts. Individuals who are privy to a treasure trove of information that is not even available to the public.

So, who are these guys?

As you may have already guessed, these “enlightened ones” are the corporate officers and board members that head up every single company. And if you like, you can make the exact same moves that they do.

Admittedly, there are all kinds of investment strategies. People put their faith and funds into strategies like “Dogs of the Dow,” seasonal investing, index investing, or simply, buy and hold.

But we have found that insider buying (when properly interpreted) is the most powerful predictor of investment success.

Research shows that sound companies with widespread insider buying tend to outperform the market by a substantial margin. In fact, a comprehensive study at the University of Michigan revealed that stocks with insider buying generally triple the performance of the market over the next six months.

Follow The Leader

Some of the most successful investors of our era attribute part of their success to following this signal.

Legendary fund manager Peter Lynch believes there is no better tipoff to the probable success of a stock. George Soros, one of the most successful hedge fund managers ever, has used the strategy to help earn returns of 36% annually… (at that rate, money doubles every two years).

Warren Buffett, too, is a big believer in what he calls “the biblical standard” (quoting Matthew 6:21: “For where your treasure is, there will your heart be also”).

Buffett’s own Berkshire Hathaway is stacked with insiders who own significant amounts of stock. (At one point, several years ago, Buffett wrote in his annual shareholder letter that every director of Berkshire Hathaway was a member of a family owning at least $4 million in stock. None of them acquired shares with options or grants). By the way… Berkshire Hathaway shares have delivered a compound annual growth rate of 15% since 1990.

And our own Alexander Green, the Investment Director of The Oxford Club, has used this technique with great success in his Insider Alert.

You can do the same in the stock market by limiting yourself only to companies that exhibit one of the chief characteristics of wealth creation: significant ownership by the people in charge.

Following insider buying is one of the investment world’s crown jewels – certainly the purest and simplest way to make money in the stock market. When insiders are piling their money into their own companies it’s because they believe the company is poised for a huge gain in profits.

And usually… they’re dead on.

Is it a Good Time to Invest in Stocks?

Is it a Good Time to Invest in Stocks?
by Alexander Green, Investment U Chief Investment Strategist
Monday, February 20, 2012: Issue #1712

More than two thousand years ago, the Greek sage and philosopher Epictetus counseled, “It is impossible for anyone to begin to learn what he thinks he already knows.”

Nowhere is this truer than in the stock market. You need only ask the many thousands of investors who have sat out an historic rally – the market has doubled from its lows years ago – because they just knew stock prices were only going to go lower.

That mindset has proved to be an expensive one. Yet these individuals now face another test.

If they jump into stocks today, having already missed one enormous move, they risk being in for the next leg down. That would hurt. On the other hand, if they continue to sit on the sidelines – earning next to nothing in bonds or cash – the market may well power higher and leave them with an even more extreme choice in the weeks and months ahead.

What is the prudent investor to do?

They Rise and They Fall

The first is to understand the error of your ways. Every market timer believes that if he sits patiently on the sidelines, he will get a better opportunity to buy stocks at lower prices.

And they often do. Unfortunately, they generally get to feeling so good about missing the downdraft that they convince themselves that the market will keep falling.

And, again, if often does. Until, of course, it doesn’t.

As the market climbs, they begin to rationalize that this is just “a bear market rally” or “a dead-cat bounce.” Until it becomes obvious that the train left the station and they’re still standing on the platform.

Cash is Not King, but Stocks Might Be

Warren Buffett’s mentor Benjamin Graham once said that no investor should have more than 75% of his money in stocks or less than 25%.

That’s a good rule of thumb. Seventy-five percent keeps you from getting overly enthused when times are good. And twenty-five percent keeps you from throwing in the towel when times are bad.

But what do you do now if you’re one of those who has played it too cautious until now and are fed up with your negative real returns in Treasury bonds or cash?

First, stop justifying what you’ve done and get off the dime. Start committing money to high-quality stocks in a gradual way. After all, if you shift a big percentage of your portfolio into stocks right now, you could regret it. And if you remain in cash, you could regret that, too.

So hedge yourself. Start moving money into stocks at regular intervals, being sure to keep buying if the market dips so you get better entry prices.

An Easy Way to Start Investing

A conservative place to start would be the Vanguard High Dividend Yield ETF (NYSE: VYM). True, it currently yields just 2.9%, but that’s still 50% more than 10-year Treasuries are paying and 50 times as much as the average money market fund.

Even if stocks go nowhere over the next 10 years – highly unlikely given the decade we just had – you’d still be better off in this fund than in a bond or money market fund.

There are a ton of reasons to put off making this move from the state of the economy to the size of the deficit. But that’s just the kind of thinking that got you stuck on the sidelines.

Look at the bright side. Inflation and interest rates are low. We’ve had five straight months of declines in the jobless rate. The ECB has extended three-year, low-cost loans to European banks. The Greek parliament has voted to actually cut spending. And we’re in a period of all-time record corporate profits.

So cast off. As the great nineteenth-century theologian William Shedd pointed out, “A ship in harbor is safe, but that is not what ships are built for.”

Good Investing,

Alexander Green

The Best Buy Signal in 53 Years

The Best Buy Signal in 53 Years

by Alexander Green, Investment U’s Chief Investment Strategist
Thursday, August 25, 2011: Issue #1586

Just weeks before the stock market made a dramatic bottom in early 2009, I wrote an Investment U column entitled “One of The Best Buy Signals in 51 Years.”

It was one of our most widely read columns that year – and syndicated many other places, as well.

I have no idea how many readers acted on my analysis at the time. After all, the financial crisis was in full swing and investor sentiment – to quote Jed Clampett – “was lower than a hog’s jaw on market day.”

But those who bought stocks on this signal made gobs of money in the months that followed. After all, the market essentially doubled between the lows of 2009 to the highs earlier this year.

Now – for only the second time in 53 years – this uncanny signal is flashing again. Here’s what it is and why you should take advantage of one of the best and most accurate signals in stock market history…

Market Yields: Stock vs. U.S. Treasuries

In the first half of the twentieth century, investors found that if you bought stocks only when the market’s yield exceeded the yield on 10-year Treasuries, you would have been in for every single major rally.

The returns were huge – and the system made perfect sense. Stocks are riskier than bonds, market participants reasoned, so they should yield more to compensate for greater volatility and the likelihood of occasional losses.

The system worked like a charm until 1958. Then it stopped cold. Why? Because for the next 50 years, stocks never yielded more than Treasuries.

Public companies began using their cash flow to fund operations and acquisitions rather than paying out dividends to shareholders. With stock yields sharply lower, most analysts reasoned that the indicator was dead, that the yield on stocks would never again top bonds.

And, indeed, it took a full blown financial crisis but two and a half years ago to finally happen again. With the luxury of hindsight, we can see that was yet another superb buying opportunity. And today it’s happening yet again thanks to both the tremendous rally in government bonds and the socking that stocks have undergone. For only the second time since 1958, stocks are yielding more than bonds.

Granted, it’s a squeaker. As I write, the 10-year Treasury is yielding 2.07 percent. The S&P 500 yields 2.16 percent. Of course the S&P 500 Index was only created in 1957. It was the Dow that investors used in the first half of the last century. And the yield on the Dow is more than 50 percent higher at 3.24 percent.

History Says… Stocks Are a Terrific Long-Term Buy

If history is any guide, that means stocks are a terrific long-term “Buy” right now and Treasuries – which have become a complete bubble and a table-pounding “Sell” in my estimation – are due for a long period of underperformance.

True, GDP growth is likely to be anemic in the months ahead. But – shocking and surprising most investors – stocks (and especially dividend-paying stocks) should do exceptionally well.

There are no guarantees in the world of stock market investing, of course. But as Patrick Henry famously said, “I know no way of judging the future but by the past.”

Good investing,

Alexander Green

Editor’s Note: So how can you capitalize on the best buy signal in the last 53 years? As Alex said, it’s important to focus on dividend-paying stocks… And the best way to read Alex’s favorite picks and his regular market commentary is to join The Oxford Club…