On Monday, Quindell (LSE: QPP) shares moved higher, after the firm disclosed that giant US bank Morgan Stanley had taken a 5% stake in the troubled firm.
Smaller investors appeared to see the banks purchase as endorsement of Quindells business, and added to their holdings, pushing Quindells share price to a closing price of around 72p a 6% gain on the day.
Even the Daily Mail published an article highlighting Morgan Stanleys stake in the firm.
Too late
What investors may not have noticed is that the Quindell update notifying the market of Morgan Stanleys purchase showed that the US bank had crossed the 3%, 4% and 5% thresholds on February 12, when Quindells share price was lower.
Unfortunately a second update from Quindell on the 18th showed that as investors were buying on the 16th, Morgan Stanley was selling, taking its stake below the 3% disclosure threshold and locking in a quick profit.
The US bank appears to have taken advantage of the four-day delay thats allowed before investors must report a disclosable holding to the company concerned.
How much did Morgan Stanley make?
Theres no way of knowing the exact average price at which Morgan Stanley bought and sold, but my estimates suggest that the average purchase price could have been around 66p, while the average sale price might have been around 70p.
That being so, Morgan Stanley may have sold at an average of around 70p per share, suggesting that the bank may have netted a profit of around 900,000, in just four days but it may have been much more.
Whats going on?
Theres no way of knowing what Morgan Stanleys original intentions were, but it certainly looks to me as if the trade was designed to take advantage of a quick pop in Quindells share price, following the disclosure of the banks stake.
Toscafund carried out a similar short-term trade in Quindell shares recently. In my view, both trades highlight the reality that institutional investors are not buying into Quindell ahead of the publication of the PwC report into the firms accounting practices, which is due at the end of February.
Until then, I believe Quindell is far too speculative to invest in and remains a sell: even if the firms business does turn out to be healthy, I believe there are too many questions about the value of its assets and its funding situation for it to be a safe investment.
Of course, you may not agree with my view on Quindell — but regardless of this, I would urge you to carry out your own research and decide for yourself, before deciding whether to invest in any stock.
A good starting point for new investors is this simple 7-step wealth-building strategy, which requires as little as 20 minutes per month to follow.
You can find all the details in this FREE, no-obligation report.
This report will only be available for a limited time, so I’d urge you to click here and download your copy immediately.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.
Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
